User Account

All Pages

capital investment decision, Managerial Accounting

Assignment Help:
Your company is considering investing in its own transport fleet. The presentposition is that carriage is contracted to an outside organization. The life of thetransport fleet would be five years, after which time the vehicles would have tobe disposed of.The cost to your company of using the outside '' organization for its carriageneeds is £250,000 for this year. This cost, it is projected, will rise 10% per annum over the life of the project. The initial cost of the transport fleet wouldbe £750,000 and it is estimated that the following costs would be incurredover the next five yearsDrivers'' Repairs & Other Costs Maintenance Costs(£) (£) (£)Year 1 33,000 8,000 10,000Year 2 35,000 13,000 15,000Year 3 36,000 15,000 20,000Year 4 38,000 16,000 16,000Year 5 40,000 18,000 22,000It is projected that the fleet would be sold for £150,000 at the end of year 5.To raise funds for the project your company is proposing to raise a long-termloan at 12% interest rate per annum.You are told that there is an alternative project that could be invested in usingthe funds raised, which has the following projected results:Payback = 3 yearsNet present value= £140,000.Internal Rate of Return = 15% As funds are limited, investment can only be made in one project.
Note:
The transport fleet would be purchased at the beginning of theproject and all other expenditure would be incurred at the end of eachrelevant year.Required:(a) Prepare a table showing the net cash savings to be made by the firmover the life of the transport fleet project.(b) Calculate the following for the transport fleet project:(i) Payback period(ii) Net present value(iii) Internal Rate of Return(c) Write a short report to the Investment Manager in your company outliningwhether investment should be committed to the transport fleet or thealternative project outlined. Clearly state the reasons for your decision

Related Discussions:- capital investment decision

Complexities, major ways that these complexities might impact a business

major ways that these complexities might impact a business

Sources of working capital, Sources of Working Capital Finance Working ...

Sources of Working Capital Finance Working capital finance may be classified in the subsequent: Spontaneous Source of Finance Finance that naturally arises in

Full service non recourse, Full Service Non Recourse: in this method the b...

Full Service Non Recourse: in this method the book debts are purchased through the factor assuming 100 percent credit risk. In case of default through the debtor the whole risk is

Case study, Anderson Nuclear Power Plant will be "mothballed" at the end of...

Anderson Nuclear Power Plant will be "mothballed" at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses

Depriciation, In 2007, the controller of the XYZ Company discovered that 20...

In 2007, the controller of the XYZ Company discovered that 2006 depreciation expense was overstated by $50,000, a material amount. Assuming an income tax rate of 40 percent, the pr

Characteristics of current assets, Working Capital management is affected t...

Working Capital management is affected through two characteristics of current assets that are as follows (i) short life span (ii) swift transformation in the other asset forms.

Steady state condition, Steady state condition In many cases, the Marko...

Steady state condition In many cases, the Markov process will converge to a steady state or equilibrium. In general, as number of transitions `n' increase, the state values

Coca Cola Balance Sheet, Required: 1. Using the information provided prepa...

Required: 1. Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also separate the current li

Representation of simplex method, Representation of Simplex method We s...

Representation of Simplex method We shall use the example previously stated for the graphical solution. The standard form of the model is given by: Maximize :  Z = 3X E + 2

What is meant by the term open book management, What is meant by the term O...

What is meant by the term Open Book Management? How does Open Book Management improve the organizations ability to achieve and improve results?

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd