An investor is planning to buy a run-down cocoa farm in a cocoa growing area for ¢5 million. The plantation of about 20 acres has purposed built-houses, offices, warehouses and a network of roads. On purchase, he will immediately replant the entire plantation with a new variety of cocoa seedlings, which mature in 4
An investor is planning to buy a run-down cocoa farm in a cocoa growing area for ¢5 million. The plantation of about 20 acres has purposed built-houses, offices, warehouses and a network of roads. On purchase, he will immediately replant the entire plantation with a new variety of cocoa seedlings, which mature in 4
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Hello, I’m not sure how to treat theses questions. Do someone has any ideas??
Transcribed Image Text:ull MTN LTE
2:59 PM
@ 63%
Ims.gimpa.edu.gh
QUESTIUN TWO
An investor is planning to buy a run-down cocoa farm
in a cocoa growing area for ¢5 million. The plantation
of about 20 acres has purposed built-houses, offices,
warehouses and a network of roads. On purchase, he
will immediately replant the entire plantation with a
new variety of cocoa seedlings, which mature in 4
years at a cost of ¢2 million. It is estimated that he will
be spending ¢700,000 p.a. on maintenance of the
roads. In 8 years' time from now, all the infrastructure
and buildings will be rehabilitated at an estimated
cost of ¢4,500,000. The investor required rate of
return is 8% and has calculated his risk premium to
be 4%. Income from the investment is expected to be
¢2 million per annum for four years and then reduced
to ¢1.5million per annum for the rest of the
investment period. The economic lifespan of the
seedlings from maturity is estimated at 6
years.
i. Calculate the total cost of the investment at the time
the cocoa reaches maturity.
ii. How can the investor make provision for the
rehabilitation cost and what will be the effect on the
net income?
iii. Should the investor undertake the investment?
Why?
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 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education