Discounted cash flow, Financial Accounting

Assignment Help:

XYZ Inc., an Ontario-based company on the cutting edge of technology, is analyzing the possibility of providing university-level courses for York University. This virtual university setting would provide the next generation of online courses by using 3D simulated digital environment where users can attend lectures, work on group assignments, write exams and socialize using their own avatar. You have been hired by XYZ to perform an NPV analysis on the project.  Below are the estimated expenses and revenues. Assume the cost of capital is 7% and the expected life of this new generation of online courses is four years.  

  1. Annual revenues: $900,000 first year, growing at an annual rate of 30% thereafter.
  2. Annual expenses: $175,000 first year, declining at an annual rate of 3% thereafter.
  3. Increase in working capital: $160,000 immediately, half of which will be recovered at the end of year 3 and the remainder recovered at the end of year 4.
  4. Cost of R&D incurred over the past two years: $350,000
  5. Cost of equipment: $3,000,000
  6. Expected salvage value at the end of 4 years: $50,000
  7. CCA rate: 40% declining balance (half-year rule applies)
  8. Tax rate: 10% (low rate due to tax subsidies received from Ontario government)

 As well,  XYZ expects net revenues (after-tax) from existing online courses it supplies to be reduced by $150,000 each year.  

 (a) Should York proceed with this virtual course project?

 (b) Does your decision change if depreciation is calculated straight-line (over four years), instead of declining balance?  (The half-year rule still applies).


Related Discussions:- Discounted cash flow

A realized gross profit, On December 15, 2011 Risby Sales Co. sold a track ...

On December 15, 2011 Risby Sales Co. sold a track of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transact

Calculate the weighted average cost of capital, Verizon Corporation has 55%...

Verizon Corporation has 55% equity and 45% debt (market values) in its capital structure. The pretax cost of debt is 7%, and that of equity 12%. The total value of the company is $

Credit control, Once credit has been extended it is vital to ensure that cu...

Once credit has been extended it is vital to ensure that customers abide by agreed terms of trade. Regular checks on customer accounts for instance using an aged receivables analys

Generates the state dependent cash flows, Consider an economy with three st...

Consider an economy with three states which occur with probability (0.2, 0.4, 0.4). Suppose a firm has a project which generates the state dependent cash flows (100, 200, 200) at t

Estimate unconditional and conditional default probability, XYZ Inc. whose ...

XYZ Inc. whose stock is currently valued at $125/share with an implied volatility of 40% has debt of $80/share. a. Assuming a global recovery rate of 50% and a standard deviatio

Internal audit department and financial statements, 1.  What cost flow assu...

1.  What cost flow assumption does the company use to value inventories? 2.  What was the amount of expense that the company reported for inventory write-downs during 2011? 3

Record the appropriate journal entry., Grand Champion, Inc., purchased Amer...

Grand Champion, Inc., purchased America's Sweethearts Corporation on January 1, 2013. At the time, America's Sweethearts had $750,000 of identifiable assets and $525,000 of liabili

Bookkeeping, #explain the accounting cyclequestion..

#explain the accounting cyclequestion..

Write Your Message!

Captcha
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!

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