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Linus Moses
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Linus Mosesadmin
Asked: November 12, 2021In:
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Let us assume a closed economy with government expenditure (Go), household expenditure (Co) are autonomous and investment as a function of interest rate. For simplicity, let us say interest rate increases from R1, to R2.

Let us assume a closed economy with government expenditure (Go), household expenditure (Co) are autonomous and investment as a function of interest rate. For simplicity, let us say interest rate increases from R1, to R2. a) Use a well labelled graph ...

economicsima612s
Ndadi
  • 2
NdadiBegginer
Asked: May 12, 2022In:

Company invested in a new machine at a cost of N$150 000. The life of the machine is 3 years and the market value at the end of that period is zero. Wear and tear is allowed by the receiver at N$50 000 per annum. Depreciation will also be allowed in equal amounts over 3 years. The income and expenditure account over the next 3 years is projected as follows: Year 1 Year 2 Year 3 Operating income 100 000 130 000 170 000 Interest (20 000) (12 000) (10 000) Depreciation (50 000) (50 000) (50 000) Earnings before tax 30 000 68 000 110 000 Tax (9 000) (20 400) (33 000) Earnings after tax 21 000 47 600 77 000 Additional information • Tax rate 30% • WACC 18% • Required return before tax 30% You are required to: a) Determine whether the company should invest in the project or not? Justify your answer b) Calculate the year-by-year Return On Investment (ROI) and the average ROI over the 3-year period c) Calculate the annual Residual Income d) Calculate the annual Economic Value Added (EVA) and the present value (PV) of the EVA values

  • 2

Company invested in a new machine at a cost of N$150 000. The life of the machine is 3years and the market value at the end of that period is zero. Wear and tear is allowed by thereceiver ...

gmagma711s
Ndadi
  • 2
NdadiBegginer
Asked: May 12, 2022In:

Polyester division of Quintex Ltd has forecast a net profit before tax of N$3 million per annum for the next five years, based on net capital employed of N$10 million. Plant replacement over this period is expected to be equal to the annual depreciation each year. These figures compare well with the group’s required rate of return of 20% before tax. Polyester’s management is currently considering a substantial expansion of its manufacturing capacity to cope with the forecast demands of a new customer. • The customer is prepared to offer a five-year contract providing Polyester with annual sales of N$2 million. • In order to meet this contract, a total additional capital outlay of N$2 million is envisaged, being N$1.5 million of new fixed assets plus N$0.5 million of working capital. The plant life is expected to be 5 years with zero scrap value. • Operating costs for the contract are estimated to be N$1.35 million per annum, excluding depreciation. • This is considered to be a low-risk venture as the contract would be firm for 5 years and the manufacturing processes are well understood within Polyester. • The consequences of income tax on the proposal may be ignored. Required: Calculate the impact of accepting the contract on Polyester division’s: a) Return on investment (ROI) for each of the 5 years b) Residual income (RI), using 20% imputed interest rate, using average capital employed per annum, and say, with reasons, for each method whether or not it would be attractive to Polyester division’s management

  • 2

QUESTION 2Polyester division of Quintex Ltd has forecast a net profit before tax of N$3 million per annum for the next five years, based on net capital employed of N$10 million. Plant replacement over this period is expected to ...

gmagma711s
Anonymous
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Anonymous
Asked: January 27, 2022In:
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The Transferico Division currently makes use of 80% of their production capacity to manufacture 80 000 units of a single product the TFC. The financial results for the past year, ended 30 June 2017, were as follows

accountinggma711s
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