Question

a) Describe the procedure that investors follow when undertaking capital budgeting decision.

b) Malcom Ltd intends to set up a plant to process more sugar in the proposed Namanve Industrial park.

In its establishment the following will be needed;

Land in Namanve will cost shs 100m, leveling the land will cost shs 50m, machinery and equipment is expected to cost Shs 300m and initial requirement of working capital to cover purchase of raw material and other inputs of Shs 150m .The equipment and machinery will be specialized and the operators will require training worth Shs 20m and installation of machinery and equipment will be done by experts from United Emirate at a cost of Shs 40m.

Other costs of freight, insurance, clearing forwarding are to cost Shs 15m. The Local Council in which the plant will be based has agreed waive off taxes on the initial set up of the project so as to attract foreign investment. This is estimated at 8% of the cost of machinery and equipment.