A group of IT students are planning to run a tuition centre and expecting to earn 18% return from the business. Duration of the business is 5 years. They have estimated the expenditures and income as follows, Initial Investment Rs. 2.5 million rupees. Residual value at the end of 5 years is Rs. 800,000. First year sales income is Rs. 2 million. It is expected to increase by Rs. 1 million per year up to 5 years. Payments for tutors are 50% of the annual sales income. First Year Admin Expenses are Rs. 200,000, where these are expected to increase by Rs. 100,000 per year up to 5 years. First Year Promotional Expenditures would be Rs. 400,000, where it is expected to increase by Rs. 100,000 per year up to 5 years. Other expenditures are Rs. 100,000 per year and will remain unchanged year to year. Tax rate 20%. Calculate the net present value (NPV) by showing all cash inflows, cash outflows, net cash flows appropriately, using a table.
A group of IT students are planning to run a tuition centre and expecting to earn 18% return from the business. Duration of the business is 5 years. They have estimated the expenditures and income as follows, Initial Investment Rs. 2.5 million rupees. Residual value at the end of 5 years is Rs. 800,000. First year sales income is Rs. 2 million. It is expected to increase by Rs. 1 million per year up to 5 years. Payments for tutors are 50% of the annual sales income. First Year Admin Expenses are Rs. 200,000, where these are expected to increase by Rs. 100,000 per year up to 5 years. First Year Promotional Expenditures would be Rs. 400,000, where it is expected to increase by Rs. 100,000 per year up to 5 years. Other expenditures are Rs. 100,000 per year and will remain unchanged year to year. Tax rate 20%. Calculate the net present value (NPV) by showing all cash inflows, cash outflows, net cash flows appropriately, using a table.
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
Related questions
Question
Please Show All Workings Very Clearly, and Do NOT use handwritten answers!
A group of IT students are planning to run a tuition centre and expecting to earn 18% return from the business.
Duration of the business is 5 years.
They have estimated the expenditures and income as follows,
- Initial Investment Rs. 2.5 million rupees.
- Residual value at the end of 5 years is Rs. 800,000.
- First year sales income is Rs. 2 million. It is expected to increase by Rs. 1 million per year up to 5 years.
- Payments for tutors are 50% of the annual sales income.
- First Year Admin Expenses are Rs. 200,000, where these are expected to increase by Rs. 100,000 per year up to 5 years.
- First Year Promotional Expenditures would be Rs. 400,000, where it is expected to increase by Rs. 100,000 per year up to 5 years.
- Other expenditures are Rs. 100,000 per year and will remain unchanged year to year.
- Tax rate 20%.
Calculate the
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education