c. Kikwetu Limited is considering investing in a project with the following characteristics:The cost of the project = Sh. 100,000%3DUseful life = 4 yearsDepreciation method: straight line methodSalvage value of project : zero.Tax rate : 30%Required rate of return:10%.The expected sales and expenses (excluding depreciation) are provided below. Year14.Expected salesExpected expenses(Excluding Depreciation)110,000120,00060,00040,00070,00075,00035,00025,000Required:(i)(ii)(iii)Compute the net cash flows for this project over its useful life dSOWhat is the profitability index of the project?Should Kikwetu Ltd invest in the project based on the profitabilityindex?

Sales represent the amount of revenue which is generated from the rendering of goods or services by…

Compute the net cash flows for this project over its useful life so What is the profitability index of the project? Should Kikwetu Ltd invest in the project based on the profitability (i) (ii) (iii) index?

Compute the net cash flows for this project over its useful life so What is the profitability index of the project? Should Kikwetu Ltd invest in the project based on the profitability (i) (ii) (iii) index?

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

c. Kikwetu Limited is considering investing in a project with the following characteristics:
The cost of the project = Sh. 100,000
%3D
Useful life = 4 years
Depreciation method: straight line method
Salvage value of project : zero.
Tax rate : 30%
Required rate of return:10%.
The expected sales and expenses (excluding depreciation) are provided below.

Year
1
4.
Expected sales
Expected expenses
(Excluding Depreciation)
110,000
120,000
60,000
40,000
70,000
75,000
35,000
25,000
Required:
(i)
(ii)
(iii)
Compute the net cash flows for this project over its useful life dSO
What is the profitability index of the project?
Should Kikwetu Ltd invest in the project based on the profitability
index?

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