Question 1206251: A company is considering implementing an investment opportunity in Dodoma. To identify this
opportunity, the company had spent Tshs. 60 million in Research and development. It plans to
carry out the project, which will involve spending Tshs. 800 million to pay for the acquisition of
plant and machinery. The plant and machinery will be acquired from Dar es Salaam and will have
to be shipped to Dodoma at a cost of Tshs 50 million while installation and commissioning cost is
estimated at Tshs. 150 million. The company will also incur a net working capital investment of
Tshs. 200 million, initially.
The project will have a useful life of five (5) years, at the end of which the plant and equipment
will be sold off and it is estimated to fetch Tshs. 300 million. If the project is successfully launched,
it will contribute an additional annual cash flow of Tshs. 1,200 million. The company will also
spend annually Tshs. 800 million in operating costs other than depreciation, interest and tax.
Furthermore, the project will need an injection of Tshs. 150 million as additional working capital
at the end of year 2.
The effective tax rate is 30 percent and it is not expected to change over the project’s life. Plant
and machinery will be depreciated at a rate of 25 percent using a written down value method.
(a)
Using the Net Present Value appraisal method, evaluate the plausibility of the project.
Investors in a similar project demands a return on investment of 15 percent (b) At what
rate would you change your position on the project and why?
(c)
What values would you post in the company’s books of accounts for plant and machinery
each year beginning from year zero (0)?
Answer by ikleyn(52768)   (Show Source):
You can put this solution on YOUR website! .
Hello,
this forum is intended to help shcool students in learning Math and in solving
their Math problems.
We do not make research in Finance.
Sometimes, we explain students how to solve the basic problems in Finance, but only in that cases,
when they are covered by the standard course of Mathematics (when they are part of Mathematics).
This problem is deeply Finance problem and is far from our specialty/specialization.
For your request, please find another, more appropriate web-site/forum/platform.
Have a nice day.
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