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28 Sep 2019
An investment alternative in a project requires a capital cost of $72 million completed at time zero. The investment will produce a stream of revenue of $50 million per year-end over a 6year period with operating costs of $20 million per yearend for the first 3 years and $25 million per yearend for the remaining 3 years. Use straight-line depreciation for the capital cost over the project period. The rate of taxation on income is 40%.
i). Construct the cash flow table, calculate the after-tax annual cash flows, and determine the payback period;
ii) Calculate the present worth and rate of return for this project.
An investment alternative in a project requires a capital cost of $72 million completed at time zero. The investment will produce a stream of revenue of $50 million per year-end over a 6year period with operating costs of $20 million per yearend for the first 3 years and $25 million per yearend for the remaining 3 years. Use straight-line depreciation for the capital cost over the project period. The rate of taxation on income is 40%.
i). Construct the cash flow table, calculate the after-tax annual cash flows, and determine the payback period;
ii) Calculate the present worth and rate of return for this project.
Chika IlonahLv10
28 Sep 2019