What is the net present value of the projects

Assignment Help Financial Accounting

Reference no: EM132743472

A company intends to invest in project M and Y whose original cost sh. 140 million and sh. 175 million respectively. Installation charges for M is sh. 2 million and transportation of sh. 1 million while for Y installation costs will be sh. 800,000 and transportation of sh. 156,000. The working capital recouped at end of 5 years for both projects is sh. 680,000. A Project manager will earn a salary of sh. 100,000 per month to run both projects hence should be share proportionately. Investors in the company are demanding a rate of compensation of 14 % and the company pays tax at the rate is 30%. Depreciation is on cost at the rate of 10% with residue value of sh.400,000 for Project M and non for Project Y.

The expected cash flows and probability is as follows:

Project M    Probability    Project Y
Year 1 sh.12 Million    0.2            14 Million
Year 2 sh. 10 Million 0.1 12 Million
Year 3 sh. 8 Million 0.3 10 Million
Year 4 sh 13 Million 0.2 6 Million
Year 5 sh. 9 Million 0.2    4 Million

The company expects to abandon the projects with the following values

Project M Project Y

Year 1 sh. 130 Million 140 Million
Year 2 sh. 115 Million 120 Million
Year 3 sh. 100 Million 90 Million
Year 4 sh. 80 Million. 60 Million

Required

Problem 1. What is the Net Present Value of the projects, should the projects be undertaken

Problem 2. Suppose the Company wants to abandon the projects, assess which year is the best for such decision

Problem 3. Determine the project with the highest risk

Reference no: EM132743472

Questions Cloud

Compute for the cost of materials purchased : Leni Company's July 2020 operations, Compute for the Cost of materials purchased. Factory overhead is applied at the rate of 80% of direct labor cost.

What will be the market price of the stock : If investors require a 16% return and the growth rate in dividends is expected to be 8%, what will be the market price of the stock?

Briefly explain the impact of the breach with reference : Briefly explain the impact of the breach with reference to the relevant auditing standards or regulatory framework. Interpret how the auditing standards.

What is the liquidity premium on squire bonds : Squire Inc.'s 5-year bonds yield 11.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds

What is the net present value of the projects : Suppose the Company wants to abandon the projects, assess which year is the best for such decision? What is the Net Present Value of the projects

What is the effective interest rate of the loan : My Hope Company is negotiating for a 4-month discounted loan for P200,000, at 12% per annum. The negotiated loan requires a 20% compensating balance.

How should the acquisition deal be structured : Suppose Hindustan Unilever (HUL) is acquiring a Tech-based Delivery Start-up in India so that it doesn't have to rely on e-commerce websites for delivery.

How many months will it take todd to cover the cost : Todd Foley is applying for a $230,000 mortgage. He can select either a $1610 monthly payment with no points or a $1449 payment with four points.

Calculate the 1-year forward rate : Calculate the 1-year forward rate. From your answer, explain this forward rate as to be an unbiased predictor (UFR) of the INR/SGD future spot

User Account

All Pages