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

Implement a spreadsheet to calculate payments, Tony is a salesperson at a l...

Tony is a salesperson at a local auto showroom. He asks you to assist him in developing a tool for calculating purchase and lease payments. He has already developed a draft of the

What do you mean by re - organization, Q. What do you mean by Re - organiza...

Q. What do you mean by Re - organization? Reorganization - This is a change in businesses capital arrangements. If for a CORPORATION there are 7 statutory options for reorganiz

What is the amount of liabilities, Craig's Cars has assets of $4,550 and st...

Craig's Cars has assets of $4,550 and stockholders' equity of $3,200. What is the amount of liabilities? What is the amount of claims?

Prepare a statement of partnership liquidation, After discontinuing the ord...

After discontinuing the ordinary business operations and closing the accounts on May 7, the ledger of the partnership indicate the following: Cash $75,000 Non cash 105,000 Liabilit

Debenture, X co has a bond outstanding that carries a coupon rate of 90% an...

X co has a bond outstanding that carries a coupon rate of 90% and current maturity is 15yrs and the call price is Rs 1060 per bond(25000 bonds Rs 1000 face amount)9% bond had origi

What do you mean by put in shares of stock, Puts - A put is an option to se...

Puts - A put is an option to sell a number of shares of stock at a stated price within a definite period. Gain or loss on a put is short or long term depending on holding period of

Protection of trustee against claims, PROTECTION AGAINST CLAIMS The tru...

PROTECTION AGAINST CLAIMS The trustees may protect themselves against claims after discharge in the following ways:   1. As regards liability for rent and other obligations und

Concepts, what is the implication of applying accounting concepts wrongly

what is the implication of applying accounting concepts wrongly

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