God is King Ltd has been printing all its magazines from Dubai due to the comparative cost advantage. The company is considering establishing its own printing department, and the R&D team have identified a printing machine which will meet the quality and cost specifications of God is King Ltd. The machine also has the capacity to print to meet the market needs of the company. The machine, which has a useful life of 5 years, will cost GHȼ800,000 and immediate installation cost will be GH¢ 50,000. Fixed cost for maintaining the machine will be GH¢170,000 per annum over the machine’s useful life and additional working capital of GH¢ 30,000 will be introduced in year 2. The use of this machine will generate a contribution of GH¢ 500,000 per annum for five (5) years. Corporate income tax rate, payable in areas, is 25% and the companies after tax cost of capital is 20%. No capital allowance is permitted. Required: Calculate the NPV for the project and advise management on whether to accept or reject the project.
God is King Ltd has been printing all its magazines from Dubai due to the
Required:
Calculate the NPV for the project and advise management on whether to accept or reject the project.
Step by step
Solved in 4 steps
