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

Total shareholder return, The dividend yield as well as capital growth for ...

The dividend yield as well as capital growth for 2004 must be calculated with reference to the 2003 end-of-year share price. The dividend yield is 0·56% (100 × 2·8/500·8) as well a

Public oversight board, Public Oversight Board (POB) - POB is an independen...

Public Oversight Board (POB) - POB is an independent oversight board, composed of public members that monitors and evaluates peer reviews conducted by SEC Practice Section (SECPS)

Activity cost drivers, Activity Cost Drivers An element of measurement...

Activity Cost Drivers An element of measurement for the stage (or quantity) of an activity that is performed within a business company.  Hence, a movement cost driver represen

Repayment of principal, a) Your company is planning to take $1,750,000 on a...

a) Your company is planning to take $1,750,000 on a 3-year, 10%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will sho

AS-10.., WHAT IS dEPRECIATION?

WHAT IS dEPRECIATION?

Calculate the operating cash flow, You are evaluating a project which costs...

You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projec

Estimate cost of equity using market values, Q. Estimate cost of equity usi...

Q. Estimate cost of equity using market values? The cost of equity as well as cost of debt should always be estimated using market values. If the approximate cash flows of a

What is asset, Q. What is Asset? Asset - An economic resource which is ...

Q. What is Asset? Asset - An economic resource which is expected to be of benefit in the future. Probable futureeconomic benefits attained as a result of past transactions or e

Prepare a lease amortization schedule, LessorMfg Corp. is a manufacturer of...

LessorMfg Corp. is a manufacturer of heavy equipment. On January 1, 2013, LessorMfg Corp. leases equipment to Small Company under a six-year noncancelable lease agreement. The foll

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