Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to have a useful life of 5 years with a residual value of shs 200,000. The following are the expected profits before depreciation and taxes for 5 years. Year Profit before depreciation and tax (shs) 1 480,000 2 320,000 3 600,000 4 450,000 500,000 Additional information: i. The company uses straight line method in calculating depreciation. ii. The corporation tax rate is 30% ii. The cost of capital is 12% Required: i. Calculate the net present value of the project ii. Advice the management whether the project is viable
Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to have a useful life of 5 years with a residual value of shs 200,000. The following are the expected profits before depreciation and taxes for 5 years. Year Profit before depreciation and tax (shs) 1 480,000 2 320,000 3 600,000 4 450,000 500,000 Additional information: i. The company uses straight line method in calculating depreciation. ii. The corporation tax rate is 30% ii. The cost of capital is 12% Required: i. Calculate the net present value of the project ii. Advice the management whether the project is viable
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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![Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to
have a useful life of 5 years with a residual value of shs 200,000. The following are the expected
profits before depreciation and taxes for 5 years.
Year
Profit before depreciation and tax (shs)
1
480,000
2
320,000
600,000
4
450,000
500,000
Additional information:
i.
The company uses straight line method in calculating depreciation.
ii.
The corporation tax rate is 30%
iii.
The cost of capital is 12%
Required:
i.
Calculate the net present value of the project
ii.
Advice the management whether the project is viable](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb85400ee-662d-4809-96ab-5271f952dc69%2F31847312-6e5f-4783-b9ec-2d005ffa220e%2F47u2gca_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to
have a useful life of 5 years with a residual value of shs 200,000. The following are the expected
profits before depreciation and taxes for 5 years.
Year
Profit before depreciation and tax (shs)
1
480,000
2
320,000
600,000
4
450,000
500,000
Additional information:
i.
The company uses straight line method in calculating depreciation.
ii.
The corporation tax rate is 30%
iii.
The cost of capital is 12%
Required:
i.
Calculate the net present value of the project
ii.
Advice the management whether the project is viable
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