Barons Groups Ltd (BGL) is preparing a budget to buy an entertainment park. The relevant
information for this investment project is given below.
The park will return an estimated total revenue of $2 400 000 over the coming four
years. That is, the annual revenue will be $600 000 to be received at each year-end.
Additional facilities costing $320 000 are required for the park immediately. The
depreciation for these facilities will be calculated using the straight line method at
15% per annum. The facilities can be detached from the park ground at the end of
Year 4 when they will be sold for $250 000 in real dollar value.
A one-off cost outlay of $60 000 is required at the beginning of Year 1, and will be
fully recouped in real dollar value at the end of Year 4.
Annual running costs of the park will be $420 000 in Year 1, and are expected to
increase by 8% inflation rate each year over the remaining three years. Assuming
these running costs will be paid at each year-end.
BGLs management expects to receive 6% as the real rate of return, i.e. after tax and risk
adjusted, from the project. The company pays income tax at 30% per annum.
Required:
a) Identify the project annual cash flows in the nominal dollar value, and determine the
project net present value (NPV). Should the project be taken based on its NPV?
b) Identify the project annual cash flows in the real dollar value, and determine the
project net present value. Should the project be taken based on its NPV?
Looking for the best essay writer? Click below to have a customized paper written as per your requirements.
The Kitten/Meo Con
Louis Blanc: His Life & His Contribution to the Rise of French Jacobin-Socialism
AAA CAA Western Canada & Alaska Tourbook
Decentring Dancing Texts: The Challenge of Interpreting Dances
The Dead Sea Scrolls 1947-1969
Boeing: The First Century & Beyond
AAA CAA Western Canada & Alaska Tourbook
Problems of Space and Time
The Insurrection in Paris
Bob Dylan and the Beatles, Volume One of the Best of the Blacklisted Journalist
Vimeiro 1808: Wellesley’s first victory in the Peninsular
Multicultural Picture Books: Art for Understanding Others
