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

Property, Property, plant and equipment Normal 0 fals...

Property, plant and equipment Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

Grounds for compulsory winding up-liquidation of companies, Grounds for com...

Grounds for compulsory winding up A company may be wound up by the court under s.219 if: 1) The company so resolves by special resolution, 2) Default is made in delivering th

Calculate the interest rate of bond sells, Third Inc. wishes to issue a per...

Third Inc. wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 30% chance that the interest rate will be 4.5% and a 70% chance that th

What should be didde''s 2011 earnings per common share, Didde Co. had 300,0...

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2010. No common stock was issued during 2011. On January 1, 2011, Didde issued 200,000 shares of

Accounts required and their purpose-branches, Accounts required and their p...

Accounts required and their purpose a. Branch Current Account (Head Office Books) Records all transactions branch and head office; The balance represents the investmen

Rectification of errors, sale of 430 to ramdas were credited in his account...

sale of 430 to ramdas were credited in his account 340

Measure of return in percentage terms, Both IRR and ROCE tenders a relative...

Both IRR and ROCE tenders a relative measure of return in percentage terms a feature that is seen as attractive to managers who may perhaps have difficulty in interpreting the abso

Compute and list the budget, When Lydia started her vending machine busines...

When Lydia started her vending machine business, she instituted flexible budgeting for the first few months of operations. Her first monthly budget numbers were these: Cost of g

Financial managment, How is a company’s cost of capital affected by its tax...

How is a company’s cost of capital affected by its tax rate?

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