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- Briefly explain three types of real options available in capital investments decisions.(Solved)
Briefly explain three types of real options available in capital investments decisions.
Date posted: April 25, 2022.
- High Tec Electronics Ltd is considering the acquisition a new machine to replace existing machine
currently being used in the production of product “Q”.
The existing machine...(Solved)
High Tec Electronics Ltd is considering the acquisition a new machine to replace existing machine
currently being used in the production of product “Q”.
The existing machine was acquired 5 years\ ago at a cost of Sh.40; 000,000.The machine was
originally estimated to have a useful life of 10 years with a nil salvage value at the end of its useful
life. However, following a revaluation of the machine, it is now estimated that the machine can be
used for another 15 years with a salvage value of sh.5,000,000.The current disposal value of the
machine is sh.30,000,000.
The new machine is estimated to cost sh.100, 000,000.The Company will incur an installation cost of
sh.20, 000, 000.However, the machine will require an overhaul at the end of 10 years.
The overhaul will involve the acquisition of new parts and will cost sh.20; 000,000.The new machine
is expected to have a useful life of 15 years and a salvage value of sh.30, 000,000 at the end of its
useful life. Investing in the new machine will also require an additional investment in working capital
of sh.40, 000,000 at the end of 5 years. The investment in working capital will however be recovered
at the end of the machine’s useful life.
The following information relates to the new machine and the existing machine’s expected output of
product “Q” over the 15 years period.
Additional information
1. The unit selling price and unit variable cost of product “Q” are sh.25 and sh.15 respectively.
These are expected to remain constant over the 15 years period.
2. The annual fixed costs excluding depreciation associated with the new machine are expected to
increase by sh.100,000,000 over the 15 years period.
3. The company applies a policy of straight line depreciation for all its fixed assets.
4. The overhaul cost of the new machine will be amortized separately over the remaining useful
life of the machine on straight line basis.
5. The company’s cost of capital is 20%.
6. Corporation tax rate is 30%.
Assume all cash flows, unless otherwise stated occur the end of each year.
Required;
Using the net present value (NPV) technique, advice the company on whether it should replace the existing machine with the new machine.
Date posted: April 25, 2022.
- Omega Manufacturers ltd is contemplating investing in a machine for its manufacturing processes.
The machine will be used to manufacture a product known as “omega”. The...(Solved)
Omega Manufacturers ltd is contemplating investing in a machine for its manufacturing processes.
The machine will be used to manufacture a product known as “omega”. The machine will cost sh.5
million and will incur installation costs amounting to sh.500,000.The machine is expected to have an
economic useful life of 5 years and a resale value of sh.1 million at the end of this period.
The acquisition of this machine is expected to cause changes in working capital at the beginning of
the expected life of the machine. Inventory balances are expected to increase by sh.2 million ,accounts
receivable will increase bysh.2.5,accounts payable will increase by sh.1.5,accrued expenses and
prepaid expenses are expected to decrease by sh.0.5 million and sh 0.4 million respectively. The net
change in working capital will be recovered at the end of the machine’s economic life.
The quantity of ‘omega” expected to be manufactured and sold in each year will be as follows:
Additional information
1. Each unit of omega is expected to be sold at sh.100 in year 1.However the price is expected to
increase by 10% annually thereafter.
2. The variable cost per unit for omega is estimated at Sh.20 in year 1.In subsequent years, this
cost will rise at the same rate as the increase in the selling price.
3. Fixed costs per annum excluding depreciation are estimated at sh.0.5 million.
4. The company applies the straight line method of depreciation for all its fixed assets.
5. The company’s cost of capital is 12%
6. Corporation tax rate is 30%.Corporation tax is paid one year in arrears.
Required;-
Using the net present value (NPV) technique, advise the company on whether the machine should be purchased.
Date posted: April 25, 2022.
- Describe the smoke point in oils and fats(Solved)
Describe the smoke point in oils and fats
Date posted: April 25, 2022.
- Describe the physical and chemical effects of heating on fats and oils(Solved)
Describe the physical and chemical effects of heating on fats and oils
Date posted: April 25, 2022.
- Discuss the structures of lipids(Solved)
Discuss the structures of lipids
Date posted: April 25, 2022.
- Types of lipids (Solved)
Types of lipids
Date posted: April 25, 2022.
- Effects of cooking fruits and vegetables(Solved)
Effects of cooking fruits and vegetables
Date posted: April 25, 2022.
- What are some of the sources of flavour in fruits and vegetables?(Solved)
What are some of the sources of flavour in fruits and vegetables?
Date posted: April 25, 2022.
- Mavoko Ltd. manufactures a component known as “Fixit” which is used in the manufacture of locally assembled desktop computers. While the current production capacity is...(Solved)
Mavoko Ltd. manufactures a component known as “Fixit” which is used in the manufacture of locally assembled desktop computers. While the current production capacity is one million units of “Fixit”, demand for the component is expected to be as follows:
The company is planning to acquire an additional machine at a cost of sh. 8,000,000 which will have a
useful life of 4 years and a maximum output of 600,000 units. The scrap value of the machine after
four years will be sh. 300,000.
The current selling price of “Fixt” is sh. 80 per unit and the variable cost is sh. 50 per unit. Other
variable costs of production are sh. 19. Fixed costs of production associated with the new machine
would be sh. 2,400,000 in the first year of production increasing by sh. 200,000 per year in each
subsequent year of operation.
Mavoko Ltd. pays tax one year in arrears at an annual rate of 30% and can claim capital allowance on
a 25% reducing balance basis. A balancing allowance is claimed in the final year of operation.
The cost of equity for mavoko Ltd. is 10% while it pays an interest of 8.6% on its debts. Its long term
fiancé is made up 80% equity and 20% debt.
Required:
i) Calculate the net present value (NPV) of buying the new machine.
ii) Calculate the internal rate of return (IRR) of the new machine.
iii) Advise the management of Mavoko Ltd. on whether to buy the new machine.
Date posted: April 25, 2022.
- Discuss three major enzymes found in fruits and vegetables (Solved)
Discuss three major enzymes found in fruits and vegetables
Date posted: April 25, 2022.
- Describe the chemical composition of fruits and vegetables(Solved)
Describe the chemical composition of fruits and vegetables
Date posted: April 25, 2022.
- Ways of preventing browning in fruits(Solved)
Ways of preventing browning in fruits
Date posted: April 25, 2022.
- List the pigments found in fruits and vegetables(Solved)
List the pigments found in fruits and vegetables
Date posted: April 25, 2022.
- Explain five methods of cooking meat(Solved)
Explain five methods of cooking meat
Date posted: April 25, 2022.
- Pwani Dock Limited is considering reopening of one of its loading docks. New equipment will
cost sh. 50,000,000payable immediately. To operate the new dock will require...(Solved)
Pwani Dock Limited is considering reopening of one of its loading docks. New equipment will
cost sh. 50,000,000payable immediately. To operate the new dock will require additional
dockside employees costing sh. 16,000,000 per annum. There will also be need for additional
administrative staff and other overheads such as extra stationery, insurance and telephone costs
amounting to sh. 19,000,000 per annum. Electricity used on the dock is anticipated to cost sh.
10,000,000 per annum.
The head office will allocate sh. 10,000,000 of its (unchanged) costs to this project. Other docks
will experience in receipts of about sh.6, 000,000 due to some degree of cannibalization. Annual
fees expected from the new dock are sh. 60,000,000 per annum.
Additional information
1. All cash flows arise at the year-end except the initial equipment acquisition costs which
are incurred at the outset.
2. There are no taxes levied or inflation experienced.
3. There are no services provided on credit.
Required;
i) Show the net annual cash flow calculations and explain the reasons for the calculations.
ii) Assuming an infinite life for the project and a cost of capital of 17 per cent, calculate the
net present value (NPV) of the project.
Date posted: April 25, 2022.
- Explain three types of meat(Solved)
Explain three types of meat
Date posted: April 25, 2022.
- Three options are available to the investment manager of Maendeleo Ltd. as follows:
- Project Weka may yield a return of Sh.20 million with a probability...(Solved)
Three options are available to the investment manager of Maendeleo Ltd. as follows:
− Project Weka may yield a return of Sh.20 million with a probability of 0.3, or a return of Sh.40 million with a probability of 0.7.
− Project Leta may earn a return of Sh.20 million with a probability of 0.3 or a return of Sh.55 million with a probability of 0.7
− Project Pato yields a return of Sh.30 million with a probability of 0.5 or Sh.40 million with a probability of 0.5
Required:
By applying the mean-variance rule, advise Maendeleo Ltd investment manager on the best investment option.
Date posted: April 25, 2022.
- Characteristics for a quality meat(Solved)
Characteristics for a quality meat
Date posted: April 25, 2022.
- Briefly describe the mean-variance rule.(Solved)
Briefly describe the mean-variance rule.
Date posted: April 25, 2022.
- Lang Ltd is interested in measuring its overall cost of capital and has gathered the following data for the year 2011:
Debt: The firm can raise...(Solved)
Lang Ltd is interested in measuring its overall cost of capital and has gathered the following data for the year 2011:
Debt: The firm can raise an unlimited amount of debt by selling Sh. 1,000 per value 8% coupon rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of Sh. 30 per bond would be given
Preference stock: The firm can sell 8% preferred stock at its Sh. 95 share per value. The cost of issuing and selling the stock is expected to be Sh. 5 per share. An unlimited amount of preferred stock can be sold under these terms.
Debt: The firm can raise all unlimited amount of debt by selling Sh. 1,000 per value 8% coupon rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of Sh. 30 per bond would be given
Equity: The firm expects to have Sh. 100,000 of retained earnings in the coming year 2012. New shares can be issued at Sh 62 each with a flotation cost of Sh 2 per share. The growth rate is expected to be 6%. Expected dividend in the coming
year is Sh. 6.
The company’s estimate optimal capital structure is given below.
The company tax is at 30%
Required
(i) Compute the specific cost of each source of financing
(ii) Determine the breakpoint and the weighted average marginal cost of capital below the
breakpoint.
Date posted: April 25, 2022.
- Illustrate the nutritional content of meat
(Solved)
Illustrate the nutritional content of meat
Date posted: April 25, 2022.
- The effects of preparation and heat to meat (Solved)
The effects of preparation and heat to meat
Date posted: April 25, 2022.
- Factors influencing rigor mortis(Solved)
Factors influencing rigor mortis
Date posted: April 25, 2022.
- Dzitsoni Ltd. is considering replacing a machine. The existing machine was bought 3 year ago at
a cost of Sh 50 million. The machine is expected...(Solved)
Dzitsoni Ltd. is considering replacing a machine. The existing machine was bought 3 year ago at
a cost of Sh 50 million. The machine is expected to have a useful life of 5 more years with no
scrap value at the end. The machine could be disposed of immediately at Sh.35 million. The new
machine will cost Sh. 80 Million with a useful life of 5 years and an expected terminal value of
Sh.5 million. With the introduction of the new machine sales are expected to increase by Sh.25
million per annum over the next five years.
The contribution margin is expected to be 40% and the corporate tax rate is 30%. The operation of
the new machine will also require an immediate investment of Sh.8 million in working capital.
Installation costs of the new machine will amount to Sh 6 million. Depreciation is to be provided
for on a straight line basis. The company's cost of capital is 12%. Capital gain taxes remain
suspended and not applicable.
Required;
(i) The initial investment for the replacement decision.
(ii) Advise the management of Dzitsoni Ltd. on whether to replace the machine.
Date posted: April 25, 2022.
- Describe the process of rigor mortis(Solved)
Describe the process of rigor mortis
Date posted: April 25, 2022.
- Define the term rigor mortis(Solved)
Define the term rigor mortis
Date posted: April 25, 2022.
- Tezo Ltd. is in the process of modernizing its operations. The factory manager has proposed the
replacement of the milling machine with a new fully computerized...(Solved)
Tezo Ltd. is in the process of modernizing its operations. The factory manager has proposed the
replacement of the milling machine with a new fully computerized machine. The milling machine
was purchased two years ago at a cost of Sh.4 million. The economic life of the machine was five
years. However, a management review has established that the machine has a further useful life of
five years with a zero salvage value. The machine could be disposed of immediately at Sh. 1.6 million.
The new machine has a purchase price of Sh.8 million with an additional installation cost of Sh.
1.8 million and a salvage value of Sh.2 million. The new machine will lead to increased efficiency
and annual savings in costs of Sh.2.1 million. However, electricity costs will increase by Sh.200,
000 per annum. The operation of the new machine will also require an increase of Sh.810, 000
worth of raw materials. The company uses the straight line method of depreciation. The
company's cost of capital is 10% and the corporate tax rate is 30%.
Required:
Advise the management of Tezo Ltd. on whether to replace the machine.
Date posted: April 25, 2022.
- Types of meat suitable for human consumption (Solved)
Types of meat suitable for human consumption
Date posted: April 25, 2022.
- Explain the physical and chemical changes occurring in eggs during cooking
(Solved)
Explain the physical and chemical changes occurring in eggs during cooking
Date posted: April 25, 2022.