Ask Question, Ask an Expert


Ask Financial Management Expert


Alert Ltd is the Mauritian-based company dealing in business procedure outsourcing sector. Wycom plc, has outsourced the appraisal of all projects under USD2 million to Alert Ltd.

Wycom  plc is the stock market listed company which manufactures panels for vans. The business is profitable and demand has been rising. The machine at the company is dated and the company is measuring whether to replace it. The new machine would cost $1,500, 000 to purchase plus $180 000 in shipping costs and installation. The machine would have a useful life of 6years and would be depreciated down to zero on the straight line basis. As a result of the new machine, revenues will raise by $400 000 per annum over its 6year life, and the machine will also generates cost savings of $200 000 per annum.

There will be extra stock required for the new machine; this is expected to be $120 000. Accounts payable will raise as a result of the new machine as will accounts receivable, by $80 000 and $100 000 correspondingly. These figures are anticipated to remain constant till the end of the project at which time the investment in working capital will be completely recouped.

The new machine will require the employ of an extra depot for storage; the depot is being rented out at moment for $100 000 a year, however would become employed by the project if the project was adopted. The machine will require a full overhaul at end of 3years; this is expected to cost $100 000. A mechanic which already works for the company will be assigned to maintain the new machine; his salary is $60 000 a year. The company will have to fill his previous position.

The old machine, which has the book value of $300 000 and 3 years of life left, will be sold if the project is accepted for $200 000. It is expected that the new machine will be sold at the end of project for $240 000. The project is a routine replacement project for company; it is small in size in relation to the company. The company is currently 25% financed by debt; there is an unalterable bond (coupon rate 8%) outstanding with which is priced at $94.12 (Nominal value, $100) in the market. The risk free rate of interest is 5%. The company’s equity has the beta of 1.384. Wycom faces a tax rate of 30% levied on accounting profits in the year in which profit is reported.  The average stock market risk premium is 6%.


Demonstrate with, supporting computations, whether or not the project must be accepted.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M99766

Have any Question? 

Related Questions in Financial Management

Option trading strategiespart 1 bull spreada consider

Option Trading Strategies Part 1: Bull Spread A) Consider buying a call option with a strike of $30 and a selling call option with strike of $40. Fill in the table for the payoffs of the bull spread. B) Plot the graph of ...

If the stanford corporations net income is 243 million its

If the Stanford? Corporation's net income is ?$243 ?million, its common equity is ?$884 ?million, and management plans to retain 74 percent of the? firm's earnings to finance new? investments, what will be the? firm's gr ...

Halliford corporation expects to have earnings this coming

Halliford Corporation expects to have earnings this coming year of $3.227 per share. Halliford plans to retain all of its earnings for the next two years.? Then, for the subsequent two? years, the firm will retain 53% of ...

Sam refuses to retire until his retirement account has a

Sam refuses to retire until his retirement account has a balance of at least $ 387,687 . Sam refuses to make any more deposits in the account. The account currently has a balance of $ 101,643 and earns 6% per year, compo ...

Given a real-estate property is expected to yield 2 per

Given a real-estate property is expected to yield 2% per quarter (nominal) with a standard deviation of the (effective) quarterly rate of 10%. How do you compute the continous compound annual risk premium on the real est ...

Provide 3 hypothetical people to exemplify the key

Provide 3 hypothetical people to exemplify the key differences in when RMDs of retirement must begin, calculating the distribution amounts for each scenario.

Mulligan inc has 1000 face-value 8 coupon bonds outstanding

Mulligan, Inc has $1000 face-value, 8% coupon bonds outstanding with ten years to maturity. the bonds make semi annual coupon payments and currently sell for 1,000. if inflation is expected to average 2.6% annually over ...

Calculate the price of a zero coupon bond that matures in

Calculate the price of a zero coupon bond that matures in 23 years if the market interest rate is 4.2 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Paul and heather are getting divorced as part of the

Paul and Heather are getting divorced. As part of the divorce settlement, Heather receives a vacation home worth $3,000,000. The couple purchased the vacation home five years ago for $1,000,000. Which of the following st ...

If joe dirts worms has annual sales of 475000 cost of goods

If Joe Dirt's Worms has annual sales of $475,000, cost of goods sold of $410,000, average inventories of $49,000, average accounts receivable of $56,000, and an average accounts payable balance of $39,800. Assuming that ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro