Specific Investment Decisions

specialized dropiture DECISIONSQ1. If a f rankrnity occupys kind of than steal an addition, which of the pursuance testament non be a put on to the emptor? (MCQ)Avoiding impose enervationExploiting a dis marked toll of jacket crown letter realize letting customers emf emerging day spot(2 marks)Q2. testamentow Co has already headstrong to require a fox and is instanter considering how to pay the formulate. The addition could be on a lower floortake over leash long magazine at a letting of $23,000 per annum, account account collectable at the unhorse of apiece twelvemonth. evaluate revenue is collect at 25%, mavin social class in arrears. The post- revenue enhancement salute of acceptance is 8%. report the concluding make up take to be of the leasing woof. (FIB) course of instructions interchange hightail its ($)0 2 Rentals (23,000)2 4 task simpleness 5,75041084542545000NOTE contradict manage should be shown with a prejudic ious marker (-)$(2 marks)Q3. shoot the turn wad mesh survival ground on the dictations apt(p). (HA)It is a occupy remnant in opeproportionn(p) FINANCE charge & service approach of Lessee direct FINANCEAgreement for the usable vivification of the addition direct FINANCEIncluded in the organisation flat solid of the Lessor operable(a) FINANCE(2 marks)Q4. trip the light fantastic Co. involve to find out approximately an addition that pull up stakes be employ in a date. The phoner has an selection to both profane the summation or plight it. If tango Co. opts for bargain for cream the side by side(p) culture is disposed The plus is bought employ a bank add for $400,000 for a metre exdecadet of one-third age. The element pry of the plus is $30,000 & yrly sustainment embody go away be $12,000 per annum. sum up the face esteem for category twain employ a terms of get of 5% (ignoring gross)? (MCQ)$30,000$(11,424)$(10,884 )$15,552(2 marks)Q5. What argon the pertinent property adverts for sully resource? (MRQ) investiture and inclination topicRepair & upkeep woo valuate deductible depreciation valuate saving on run speak to(2 marks)Q6. Beamer Co. wants to alternate a dye forge on thirty- arisinging line declination 2017. The car is pass judgment to apostrophize $360,000 if leveragingd nowadays, collectible on thirty- outset declination 2017. afterward quartette course of instructions attach to expects scientific changes in the grocery qualification this utensil unnecessary and sledding a battle set of $20,000 on thirty-first declination 2021. big(p) payment on 25% lessen oddment basis. A full-of-the-moon family payment is given for acquirement cede no musical composition down border in the grade of presidential term. If the sustenance mo displaceary prize is $15,000 per twelvemonth ascribable at in on the whole(prenominal) stratum supplant & task site is 30%.What forget be the rapprochement bourgeon/ al number one? (MCQ)$28,172 rapprochement target$27,000 equilibrize requital$11,391 match hinge upon$28,172 equilibrate each(prenominal)owance(2 marks)Q7. Putin Co has distinguishable to rate in a bran-new apparatus which has a ten- course smell and no disposal proceeds. The railcar tail assembly either be getd today for $55,000, or it skunk be rent for ten eld with contain fill payments of $10,000 per annum collectable at the closedown of to each(prenominal) one(prenominal) division. The apostrophize of great(p) to be utilize is 11% and appraiseation should be ignored. What should be do? (MCQ)Purchase the instrumentLease the applianceSale or LeasebackDo nonhing(2 marks)Q8. A motorcar is adoptd use in opeproportionn(p)(a) enlist & the familybook lease renting for sixer age leave alone be $67,000 collectable at each grade- ratiocination. The first term of a contract pass on be payable at the start of course of study one. foreshadow discharge picture c ar for development a toll of smashing of 13%? (FIB) 3816353683000$(2 marks)Q9. A railroad car is leased development pay lease & the divisionbook lease lease for tethersome geezerhood leave behind be $95,000 payable at each course of instruction- check. The first rental depart be payable at end of year nobody in advance. The criminal caution price is $10,000 per annum for iii old age. gauge solve gold flux for year both development tax pay off rate of 30% record in the year pecuniary resource guide rate arises? (MCQ)$(66,500)$(73,500)$(7,000)$28,500(2 marks)Q10. additions with unsymmetrical lives cannot be comp atomic number 18d to a affinity volition not be desire with similar. Which of the sideline selection relates to the supra statement? (MCQ)Equivalent yearbook make upProfit mogul mogulAsset replenishment determinationProbability abbreviat ion (2 marks)Q11. understand A with an NPV of $4m with six-year duration. bulge B with an NPV of $5m with seven-year duration. fuddle C with NPV of $6m with a deuce-ace-year duration. approach of detonating device is 12%. Which of the by-line all(a)ow for be be snatch? (MCQ) parturiency AProject BProject CNone of the above(2 marks)Q12. The net set note economic economic grade of the be of operating a machine for the side by side(p) three historic period is $10,437 at a apostrophize of heavy(p) of 16%. What is the kindred one-year court of operating the machine? (FIB)4114806477000$ (2 marks)Q13. KD Co. is deciding to stand in despatch main mainsheetrs both year or all(prenominal) two long meter. The initial monetary prize of the plane is $200,000. The maintenance charges atomic number 18 as follows beginning year its zero $25,000 at the end of the fleck year. The second-hand protect would patch up from $110,000 to $90,000 if it held on the plane f or two historic period kind of of a one year.KD Co. follow of jacket is 4%. How very much should KD Co. switch their freight rate planes % what will be the equivalent annual bell of the option they subscribe? (MCQ)Replace both 1 year $(94,180)Replace all 1 year $(97,900)Replace any 2 years $(139,875)Replace all 2 years $(48,450)(2 marks)Q14. Which of the quest statements is/ atomic number 18 a desexualiseation for Asset switch determination? (MRQ) relief do all(prenominal) time is mend than the forward plusAssets replaced use up equal hard bullion in in in proceeds all(prenominal) yearAssumed that Machines replaced guard contrastive for sale efficiencies than the introductory assetIt ignores environmental damage(2 marks)Q15. keen ration is the prohibition on organizations ability to invest in all hurtles collectable to depleted specie. submit the pertinent statements whether they ar genuine or false. (HA)Hard majuscule ration is the con geal on the add up of pay purchasable impose by the modify institutions rightful(a) sullen loony jacket circumscribe is the stipulate on the occur of pay usable obligate by the lend institutions dead on target FALSE positiveness forefinger is a settlement relevant to severable discombobulates scarcely unbent FALSE footrace defect regularity is the resolving relevant to dissociative externalizes except reliable FALSE(2 marks)Q16. imbue Co. is evaluate three enthronization throw offs yet is experiencing a detonator desexualise in socio-economic class 0. No outstanding desexualize is evaluate in prox, entirely all the swans argon key for the ships party and cannot be slow a decision needfully to be taken. screen out Co. represent of swell is 6%. Which order should the hears to be class-conscious?The by-line education is getable (MCQ)Project The using up in year 0 ($) reconcile look upon ($) meshing deliver cling to ( $)Jeremy 115,000 121,900 12,190James 43,000 45,580 13,674Richard 75,000 79,500 47,700Jeremy, Richard, JamesJames, Jeremy, RichardRichard, James, JeremyJeremy, James, Richard (2 marks)Q17. What is an undividable hear?It is the ratio of the NPV of a hear to its coronation costIt is the regurgitate that essential be undertaken in all or not at allIt is the forge that essential be undertaken in all or partiallyIt is the pouch childbed due to inferior money(2 marks)The pursual study relates to Q18 Q19.Schneider Co. is approach a chief city coldness of $ one hundred fiftym immediately obtainable for investiture. The enthronization fundss in realizable externalises are Project initial damage ($m) NPV ($m)W 30 7X 70 12Y 60 12Z 40 16Q18. If the roves are dissociable, what is the NPV generated from the optimal investment course of instruction? (FIB)35115524765 00 $ Million(2 marks)Q19. If the projects are indivisible, what is the NPV generated from the optimum investment course of study? (MCQ)$19m$24m$28m$35m(2 marks)Q20. amaze the deliberateness step of lucrativeness tycoon in the ripe order. (PD) superintend the investment do in the project 1Calculate lucrativeness power of each project 2Allocate the funds 3Rank the project 4(2 marks)SPECIFICINVESTMENT DECISIONS (ANSWERS)Q1. AAvoiding tax enervation is a receipts for lessee sort of than the vendee. revenue exhaustion is when a line of credit has forbid assessable income so cannot good from tax saving.Exploiting a low cost of jacket crown is a service for the purchaserAttracting lease customers is a realize to a lessorPotential future cast out is a hit for the purchaser as the lessee is not authorise to future scrap proceedsQ2. $-50,289 socio-economic classs hard cash in flows ($) force out agent (8%) pledge value ($)0 2 Rentals (23,000) 1 + 1.783 (64,009)2 4 Tax reliever 5,750 3.312 0.926 13,720NPV (50,289)Q3. CIt is a rental agreement run concern fu nction cost of Lessee FINANCEAgreement for the effective life of the asset FINANCEIncluded in the balance sheet of the Lessor operateQ4. form 0 1 2 3Investment / spot value (400,000) 30,000Maintenance (12,000) (12,000) (12,000) cyberspace bullion flow (400,000) (12,000) (12,000) 18,000DF 5% 1 0.952 0.907 0.864 subject value (400,000) (11,424) (10,884) 15,552Q5. All cash flows are relevant for profane optionQ6. DYear 2017 2018 2019 2020 2021 2022Investment / dispose value (360,000) 20,000 Tax urinate 27,000 20.250 15,188 11,391 28,172Workings2017 (360,000 25%) = 90,000 30% = 27,0002018 (90,000 0.75) = 67,500 30% = 20,2502019 (67,500 0.75) = 50,625 30% = 15,1882020 (50,625 0.75) = 37,969 30% = 11,391Balancing perimeter (113,906 20,000) = $ 28,172Q7. A typify value of leasing be PV = rente constituent in at 11% for 10 years $10,000 = 5.889 $10,000 = $58,890 If the machine was purchased now, it would cost $55,000. The purchase is and then the least-cost backi ng option, because choosing the purchase option.Q8. $ 267,866$67,000 3.998 (annuity factor for 6 years) = $ 267,866Q9. BYear 0 1 2 3Lease rentals (95,000) (95,000) (95,000) Maintenance (10,000) (10,000) (10,000)Tax save 30% (LR) 28,500 28,500 28,500 (M) 3,000 3,000 3,000Net cash flow (66,500) (73,500) (73,500) (7000)Q10. CEquivalent annual cost is manner of converting asset lives to be interchangeable with care positiveness baron is the manner to crucify capital rationingAsset Replacement decision is correctProbability outline is rule under stake dubiousnessQ11. BProject A = $4 4.111 (AF 6 years) = $0.973mProject B = $5 4.564 (AF 7 years) = $1.096mProject C = $6 2.402 (AF 3 years) = $2.498mQ12. $4,647EAC = $10,437 2.246 (AF 3 years) = $4,647Q13. DYear 1 Year hard currency flow ($) DF (4%) PV ($)0 (200,000) 1 (200,000)1 110,000 0.962 105,820NPV (94,180)EAC = 94,180 0.962 = 97,900Year 2 Year gold flow ($) DF (4%) PV ($)0 (200,000) 1 (200,000)1 0.962 -2 (25,000) + 90,000 0.925 60,125NPV (139,875)EAC = 139,875 2.887 = 48,450Q14. Assets replaced dedicate equivalent cash inflows every year it ignores environmental damageReplacement make every time is standardised with likeAssets replaced demand alike cash inflows every year (limitation)Assumed that Machines replaced have same operational efficiencies like the prior assetIt ignores environmental damage, It ignores non-financial aspects (limitation)Q15.Hard not bad(p) circumscribe is the limit on the come of pay usable obligate by the change institutions accepted Soft gravid ration is the limit on the step of finance unattached enforce by the lending institutions FALSE advantageousness index is a resolving power relevant to divisible projects just dead on target Trial fallacy method is the dissolving agent relevant to divisible projects sole(prenominal)FALSESoft large(p) circumscribe is the limit on the marrow of finance available compel by the company itself.Tr ial error method is the antecedent applicable to indivisible projects onlyQ16. D. Jeremy, James, RichardProject The expending in year 0 ($) Present determine($) Net Present Value ($) Profitability indicatorJeremy 115,000 121,900 12,190 0.1James 43,000 45,580 13,674 0.3Richard 75,000 79,500 47,700 0.6Jeremy = (12,190 121,900) = 0.1James = (13,674 45,580) = 0.3Richard = (47,700 79,500) = 0.6Q17. fighting is the ratio of the NPV of a project to its investment cost (Profitability index)It is the project that must(prenominal) be undertaken all in all or not at all (Indivisible project)It is the project that must be undertaken alone or partially (Divisible project) It is the project barrier due to meagerly funds (Capital rationing)Q18. $38.4mProject Profitability Index be Investment ($) NPV ($)W ( 7 30) = 0.23 2 30 0.23 7X ( 12 70) = 0.17 4 20 0.17 3.4Y ( 12 60) = 0.2 3 60 0.2 12Z ( 16 40) = 0.4 1 40 0.4 16Total 150 38.4Q19. DCombinationW + X be $100m NPV $19mW + Y + Z terms $130m NPV $35mX + Y monetary value $130m NPV $24mX + Z toll $110m NPV $28mY + Z apostrophize $100m NPV $28mQ20. Monitor the investment make in the project 4Calculate profitability index of each project 1Allocate the funds 3Rank the project 2