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

Evaluating the investment using return on capital employed, Evaluating the ...

Evaluating the investment using return on capital employed: Annual depreciation charge = 1500000/5 = $300000 Average investment = 1500000/2 = $750000 Average annual

their yield to maturity, Thatcher Corporation's bonds will mature in 12 ye...

Thatcher Corporation's bonds will mature in 12 years. The bonds have a face value of $1,000 and an 11.5% coupon rate, paid semi-yearly. The price of the bonds is $1,050. The bonds

Explain productivity linked bonus, Q. Explain Productivity linked bonus? ...

Q. Explain Productivity linked bonus? The grant of productivity-linked bonus is intended to provide substantial motivation towards achieving higher productivity by way of incre

Invoices before Inventory, How should I handle Booking an invoice in one mo...

How should I handle Booking an invoice in one month for Raw material that has not been received until the following month?

Steps required to do the arbitrage. , John Chan considers buying a six-mont...

John Chan considers buying a six-month stock futures contract on the shares of Li & Fung Limited. Shares of Li & Fung Limited are now trading at $50 per share and it is expected th

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

Find annual acquiring firm, Find the annual reports of the acquiring firm a...

Find the annual reports of the acquiring firm and answer the following questions for the five years before merger took place I)   What information is provided about merger a

Remedies available to beneficiary-breach of trust, Remedies available to be...

Remedies available to beneficiary 1) Injunction - to prevent unauthorised action by trustees; 2) Personal action - a trustee is only liable for his own acts and defaul

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