Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: . The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. . Production will start on 1st January 2024. . Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 207

Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: . The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. . Production will start on 1st January 2024. . Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 207

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Subject : Accounting Samson Ltd is considering replacing equipment. The cost on 1.1.2023 will be £3m. The expected economic life of the equipment will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £400,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £1,200,000 in each of years 1 and 2 and £800,000 in each of years 3 and 4. What is the payback of this investment? Select one answer: 2 years 3 years 2 years and 9 months 3 years and 2 months
Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: • The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. Production will start on 1st January 2024. • Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 2% each year starting in the 3rd year of production. • The plant will incur maintenance costs of £500,000 incurred at the end of each year after start of production. From the 6th year of production onwards, maintenance costs will increase by 3% each year. (a) Calculate (i) the discounted payback period of the project assuming an AER of 7.5% per annum (ii) the accumulated value of the project on 1st of January…
Question 1 Alpha Engineering Ltd. is considering the purchase of a new cnc. machine tool to replace four old capstan lathes. The new machine will cost £150,000 and is expected to last five years, after which it is expected to realise a scrap value of £10,000. Additional dedicated tooling for the new machine will cost a further £25,000. A maintenance contract will be taken out to cover the machine at a cost of £10,000 per annum. The maintenance of the additional dedicated tooling will be done in-house at an estimated cost of £5,000 per year. A cnc. programmer/operator will be recruited at a cost of £20,000 per year. The benefits expected from the new cnc. machine will include the scrap value of the old machines, which is expected to be £5,000 each. The wages of four capstan operators of £17,000 per annum each plus the cost of a maintenance fitter at £18,000 per annum can also be considered as a benefit. A further saving of £10,000 per year in reduced scrap/rework costs should also be…
QUESTION 1 (a) You are the financial manager of a very profitable firm, which is currently evaluating a new, large investment project at the start of 2020. The project involves the acquisition of a plant, which requires an initial outlay of £300 million. The project's investment horizon is six years. Over this period, the initial capital investment in the plant should be fully depreciated. Despite this, it is expected that at the end of the project (after six years) the taxable salvage value of the plant will amount to £50 million. The project requires an initial (at the start of 2020) working capital investment of £30 million, which should be recovered in full at the end of 2025. Your accountants have put together the following projections on expected sales and cash flows, and information on the cost of capital of the company: Sales EBITD Depreciation EBIT Tax expense EBIAT Table 1. Sales and cash flow projections 2021 2022 2023 135 140 125 75 80 65 (50) (50) 30 15 (6) (3) 12 2020 120…
Question 4 Given the initial investment in a factory processing equipment as Ghc500,037. Let the opportunity cost of capital for the industry be 10% p.a. Assuming that the equipment is capable of generating an after-tax returns of Ghc115,000 for the first 5 years and Ghc65000 for the 6th year and Ghc53400 for the 7th year. a. Find the Net Present Value (NPV) b. Determine the Internal Rate of Return c. Identify three ways in which the Net Present value is superior to the Internal Rate of return as investment criteria
Question 3 Your organisation is considering expanding the Human Resources Department at an initial cost of £50,000. This will allow extra training to be provided for staff over the next five years, which is expected to increase net income by £7,000 per annum. (This is after charging £5,000 a year for depreciation). The cost of capital to be used for this investment project is 8%. Required: a) Calculate the Payback period of the investment proposal in years and months. b) Calculate the Accounting Rate of Return for the project. c) Calculate the Net Present Value (NPV) for the project. d) Write a note to your manager giving your recommendation of the proposal; with justification; and explaining the advantages of using Net Present Value compared with Payback Period for investment appraisals. e) What other information would you ideally want to have in order to help you reach a considered opinion on the project's feasibility?
Question 12 Lichen Plc owns a machine that has a carrying value amount of £85,000 at the year-end of 31 March 2023. Its market value is £78,000 and costs of disposal are estimated at £2,500. A new machine would cost £150,000. Lichen Plc expects it to produce net cash flows of £30,000 per annum for the next three years. The cost of capital of Lichen Plc is 8%. Required: What is the impairment loss on the machine to be recognised in the financial statements at 31 March 2023 (Enter your answer to the nearest whole £).
Question: London company management is considering the following three competing investment Projects Option1: Starting a unit in Manchester, Option 2: Starting a unit in Cambridge Option 3: Starting a unit in Scotland The initial investment for all the projects are 15000 and the cost of capital is 5.05% Year Manchester Cambridge Scotland 1 1100 2160 3225 2 3100 3260 4250 3 3800 4360 5475 4 4600 5460 6300 5 5100 6900 7000 Use the information below and help the management in choosing the most desirable Project using Payback period Discounted payback Net Present value Profitability Index. You have to suggest to the management which project to choose and why?
Question 1Real Estate Ltd is considering investing in property development, which requires an initial investment of £130,000. The annual cash inflows during years 1-3 are expected to be £40,000 for year 1; £45,000 for year 2 and £52,000 for year 3. The company’s money cost of capital is 6% and inflation is expected to be 3% during the life of the project. Required: a) Calculate the ARR of the project, taking inflation into account. b) Calculate the (Undiscounted) Payback Period of the project, taking inflation into account. c) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken. d) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places), and state clearly whether the project should be undertaken.e) Discuss the likely impact of your results in parts c) and d) above on Real Estate Ltd.
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $ 46,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $51,000 in plant and equipment. Required: What is the initial investment in the product? Remember working capital. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year? If the opportunity cost of capital is 15%, what is project NPV? What is project IRR?
Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $46,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues in the following year. The product requires an immediate investment of $51,000 in plant and equipment. Required: a. What is the initial investment in the product? Remember working capital. b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year? Assume the plant and equipment are worthless at the end of 4 years. c. If the opportunity cost of capital is 15%, what is the project's NPV? d. What is project IRR?
QUESTION 2 Your firm is trying to invest in a Project A for planning horizon of 5 years. The initial investment and initial revenue are RM300, 000 and RM10, 000 respectively. The cost for first year including renovation of building (RM5, 000), IT (RM5, 500) and maintenance (RM9, 000). The annual cost of operation is RM20, 000 for second year while remaining are RM10, 000. The company predicts that the project will generate a stream of earning RM100, 000, RM120, 000, RM130, 000 and RM150, 000 for first 4 years respectively. While the expected revenue of year 5 comes from 3rd party payment (RM70, 000), technology transfer (RM70, 000) and new systems (RM60,000). Develop a gross cash flow and calculate the cash flow after tax of 30%. Estimate the internal rate of return (IRR) after If the Project B has IRR of 35%, decide the best investment and state your

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS