CellTel Limited, a giant player in the telecommunication industry mostly operates in the North African telecommunication industry and intends on setting up operations in Namibia. In the first half of 2020, it paid consulting fees amounting to N$300 000 to a consulting firm to conduct a feasibility study of its plans in the Namibian market. In the second half of 2020, it also paid licensing application fees of N$50 000 to the Communications Regulatory Authority of Namibia (CRAN), the Namibia communications regulator to be granted a license to operate, which was subsequently granted for operations to start in 2021. As per the business plan, the company will require an amount of N$7 million immediately for specialized equipment required to set-up its telecommunication infrastructure in Namibia during the initial 3 years of phase 1 of the project.
Projected profit before tax (PBT) to be generated from Phase 1:
|Projected profit before tax (N$)||3 million||2.8 million||3–.2 million|
Depreciation of the specialised equipment in profit before tax is calculated on the straight line method based on the duration of the project (i.e., 3 years) and the Namibia Revenue Agency (NamRA) grants wear and tear tax allowances using the straight line method (i.e., 33.3% per annum). Tax payments are half payable in the year incurred and the balance in the following year. The project will require working capital of N$4.5 million on inception. The corporation tax is 32% and the cost of capital is 12%.
|Advise CellTel whether to invest in the “Namibian Opportunity” or not based on Net Present Value (.NPV) calculations.||20|
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