Identify two types of such a company and explain why. QUESTION TWO Total [12 marks] Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%. [5 marks] (b) Using the net present value technique for project evaluation, advise Finozest solutions on whether they should undertake this project. (a) Estimate the accounting rate of return expected from his investment. [10 marks] (c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven rate for the project. [10 marks] Total [25 marks]
Identify two types of such a company and explain why. QUESTION TWO Total [12 marks] Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%. [5 marks] (b) Using the net present value technique for project evaluation, advise Finozest solutions on whether they should undertake this project. (a) Estimate the accounting rate of return expected from his investment. [10 marks] (c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven rate for the project. [10 marks] Total [25 marks]
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 8P
Related questions
Question
![Identify two types
of such a company and explain why.
QUESTION TWO
Total [12 marks]
Finozest Solutions is considering setting up a facility to manufacture computers. The
manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000
computers a year. Each computer is expected to sell retail for K2,800, and the cost of
making each computer is expected to be K1,400. The fixed costs amount to K150,000
per year are expected to be incurred. The business will run for five years, at which time
you estimate the market value of the facility to be zero. The discount rate is estimated at
10%, and the tax rate is 40%.
[5 marks]
(b) Using the net present value technique for project evaluation, advise Finozest solutions
on whether they should undertake this project.
(a) Estimate the accounting rate of return expected from his investment.
[10 marks]
(c) After the release of the latest GDP projections for the country, you now estimate that
at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven
rate for the project.
[10 marks]
Total [25 marks]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd221770e-bf15-4028-bd6b-18893797f624%2Fe754689d-e0cf-4584-a7ab-140303c2de31%2Fr9fkcoz_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Identify two types
of such a company and explain why.
QUESTION TWO
Total [12 marks]
Finozest Solutions is considering setting up a facility to manufacture computers. The
manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000
computers a year. Each computer is expected to sell retail for K2,800, and the cost of
making each computer is expected to be K1,400. The fixed costs amount to K150,000
per year are expected to be incurred. The business will run for five years, at which time
you estimate the market value of the facility to be zero. The discount rate is estimated at
10%, and the tax rate is 40%.
[5 marks]
(b) Using the net present value technique for project evaluation, advise Finozest solutions
on whether they should undertake this project.
(a) Estimate the accounting rate of return expected from his investment.
[10 marks]
(c) After the release of the latest GDP projections for the country, you now estimate that
at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven
rate for the project.
[10 marks]
Total [25 marks]
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