A company is evaluating a loss control plan. The costs and benefits are as follows: • The initial outlay of the loss control plan is RM10,000. ● The annual upkeep costs for the first three years are RM500 and for the subsequent two years are RM300. ● The dismantle cost at the end of year five is RM200. ● Without the loss control plan, the loss experienced was RM4,500 per year. With the loss control plan, the expected loss will be RM2,000 per year. . The company's cost of capital is 5%. Answer the following questions based on the information given above: A mounts to What is the NPV of implementing the loss control plan? (Round all amour the nearest dollar) Year 1 Year 2 Year 3 Year 4 Year 5 Today RM RM RM RM RM RM (10000) (5000) (5000) (5000) (4800) (5000) Loss Control Expenditure Reduction in 2500 2500 2500 2500 2500 Expected Loss Undiscounted NCF (10000) (2500) (2500) (2500) (2300) (2500) PVIF @ 5% 0.9524 10.9070 0.8638 0.8227 0.7835 Discounted NCF (10000) (2381) (2267.5) (2195.5) (1892.21) (1958.75) NPV (20658.96) Note: NCF is net cash flow. PVIF is present value interest factor Round the values of PVIF @ 5% to four decimal places B. Should the company implement the loss control plan? Give reason to support your answer.
A company is evaluating a loss control plan. The costs and benefits are as follows: • The initial outlay of the loss control plan is RM10,000. ● The annual upkeep costs for the first three years are RM500 and for the subsequent two years are RM300. ● The dismantle cost at the end of year five is RM200. ● Without the loss control plan, the loss experienced was RM4,500 per year. With the loss control plan, the expected loss will be RM2,000 per year. . The company's cost of capital is 5%. Answer the following questions based on the information given above: A mounts to What is the NPV of implementing the loss control plan? (Round all amour the nearest dollar) Year 1 Year 2 Year 3 Year 4 Year 5 Today RM RM RM RM RM RM (10000) (5000) (5000) (5000) (4800) (5000) Loss Control Expenditure Reduction in 2500 2500 2500 2500 2500 Expected Loss Undiscounted NCF (10000) (2500) (2500) (2500) (2300) (2500) PVIF @ 5% 0.9524 10.9070 0.8638 0.8227 0.7835 Discounted NCF (10000) (2381) (2267.5) (2195.5) (1892.21) (1958.75) NPV (20658.96) Note: NCF is net cash flow. PVIF is present value interest factor Round the values of PVIF @ 5% to four decimal places B. Should the company implement the loss control plan? Give reason to support your answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Answer B part also
Transcribed Image Text:A company is evaluating a loss control plan. The costs and benefits are as follows:
The initial outlay of the loss control plan is RM10,000.
The annual upkeep costs for the first three years are RM500 and for the subsequent two
years are RM300.
.
The dismantle cost at the end of year five is RM200.
●
Without the loss control plan, the loss experienced was RM4,500 per year.
With the loss control plan, the expected loss will be RM2,000 per year.
●
The company's cost of capital is 5%.
Answer the following questions based on the information given above:
A
What is the NPV of implementing the loss control plan? (Round all amounts to
the nearest dollar)
Year 2
Year 3
Year 4 Year 5
Today Year 1
RM
RM
RM
RM
RM
RM
(10000) (5000)
(5000)
(5000)
(4800)
(5000)
Loss Control
Expenditure
Reduction in
2500
2500
2500
2500
2500
Expected Loss
Undiscounted NCF
10000)
(2500)
(2500) (2500) (2300)
(2500)
PVIF @ 5%
1
0.9524
0.9070
0.8638
0.8227 0.7835
Discounted NCF
(10000)
(2381)
(2267.5) (2195.5)
(1892.21) (1958.75)
NPV
(20658.96)
Note: NCF is net cash flow.
PVIF is present value interest factor
Round the values of PVIF @ 5% to four decimal places
B.
Should the company implement the loss control plan? Give reason to support your
answer.
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