Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected tohave a useful life of 5 years with a residual value of shs 200,000. The following are the expectedprofits before depreciation and taxes for 5 years.YearProfit before depreciation and tax (shs)1480,0002320,000600,0004450,000500,000Additional information:i.The company uses straight line method in calculating depreciation.ii.The corporation tax rate is 30%iii.The cost of capital is 12%Required:i.Calculate the net present value of the projectii.Advice the management whether the project is viable

Calculation of annual cash profits of the project: Cash profit is determined by deducting…

Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to have a useful life of 5 years with a residual value of shs 200,000. The following are the expected profits before depreciation and taxes for 5 years. Year Profit before depreciation and tax (shs) 1 480,000 2 320,000 3 600,000 4 450,000 500,000 Additional information: i. The company uses straight line method in calculating depreciation. ii. The corporation tax rate is 30% ii. The cost of capital is 12% Required: i. Calculate the net present value of the project ii. Advice the management whether the project is viable

Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to have a useful life of 5 years with a residual value of shs 200,000. The following are the expected profits before depreciation and taxes for 5 years. Year Profit before depreciation and tax (shs) 1 480,000 2 320,000 3 600,000 4 450,000 500,000 Additional information: i. The company uses straight line method in calculating depreciation. ii. The corporation tax rate is 30% ii. The cost of capital is 12% Required: i. Calculate the net present value of the project ii. Advice the management whether the project is viable

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 17P

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