Prepare a schedule of incremental earnings

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Curry Pic's profits next year are expected to be f.50 million. Analysts believe there will be scope to invest 50 per cent of profits next year but in the following year investment is more likely to be around 40 per cent of profits. Reinvestment opportunities after three years are not likely to account for more than 30 per cent of profits. It is expected that the reinvestment of profits will remain at 30 per cent indefinitely into the future from year four onwards. The (internal) rate of return on new investments is expected to be 60 per cent next year, 45 per cent the following year, and 30 per cent in year three. The rate of return in year four onwards is likely to be around 10 per cent. Investors demand a rate of return of 10 per cent on this type of investment.

a) Prepare a schedule of incremental earnings, net present value from investment projects, total earnings, and dividends for years 1 to 5.

Reference no: EM133205684

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