Virtual learning expects net revenues, Financial Accounting

Assignment Help:

Virtual Learning 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 Virtual Learning 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.

  • Annual revenues: $900,000 first year, growing at an annual rate of 30% thereafter.
  • Annual expenses: $175,000 first year, declining at an annual rate of 3% thereafter.
  • 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.
  • Cost of R&D incurred over the past two years: $350,000
  • Cost of equipment: $3,000,000
  • Expected salvage value at the end of 4 years: $50,000
  • CCA rate: 40% declining balance (half-year rule applies)
  • Tax rate: 10% (low rate due to tax subsidies received from Ontario government)

 

As well, Virtual Learning 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:- Virtual learning expects net revenues

Prepare journal entries to record liquidation transaction, Terry Marks is a...

Terry Marks is a well-known architect. He wants to start his own business and convinces Rob Norris, his cousin and a civil engineer, to contribute capital. Together, they form a pa

Quarterly cash payments budget, Emily Jackson, RSC Designs management accou...

Emily Jackson, RSC Designs management accountant, is in charge of preparing the master budget for 2013.  She has gathered the following information: 1. Annual profit for the 201

Investment, compute the arithmetic mean rate of return and standard deviati...

compute the arithmetic mean rate of return and standard deviation of rates of return for the two series

What are the financial statements, Q. What are the financial statements? ...

Q. What are the financial statements? Significant Accounts - An account is significant if there is more than a remote likelihood that account could include misstatements which

Case study, It is the month of april for rand company a producer of gold an...

It is the month of april for rand company a producer of gold and silver commemorative medallions. Rand company has one job, job A a special minting of 1000 gold medallions which st

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

Cash budget, Beginning balance 24,000 cash Sales 250,000 Gross profit 45% o...

Beginning balance 24,000 cash Sales 250,000 Gross profit 45% of sales Accounts receivable increase by 24,000 Accounts payable increased by 51,000 Inventory increased by 98,000 Sell

Callable preferred stock, Callable Preferred Stock On March 4, 2013, Hein C...

Callable Preferred Stock On March 4, 2013, Hein Corporation issues 1,000 shares of $100 par preferred stock for $125 per share. The stock is not callable by the corporation until 3

Prepare income statement and analysis of retained earnings, You are prepari...

You are preparing and income statement and analysis of retained earnings for Pacioli Wholesale Corporation for the years ended June 30, 2011 and 2012 based on the following informa

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