Question 12Lichen Plc owns a machine that has a carrying value amount of £85,000 at the year-endof 31 March 2023. Its market value is £78,000 and costs of disposal are estimated at£2,500. A new machine would cost £150,000. Lichen Plc expects it to produce net cashflows of £30,000 per annum for the next three years. The cost of capital of Lichen Plc is8%.Required:What is the impairment loss on the machine to be recognised in the financial statementsat 31 March 2023 (Enter your answer to the nearest whole £).

The objective of the question is to calculate the impairment loss on the machine to be recognised in…

Answered: Question 12 Lichen Plc owns a machine…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QUESTION 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,000. Accounts payable will decrease by $5,000. The project requires the purchase of equipment at an initial cost of $90,000. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%? $48,772.08 $54,681.35 $56,209.19 $42,908.17 $44,141.41
Question 2 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the cap rate at time 0?
n * A manufacturer of video games develops a new game over two years. This costs $840,000 per year with one payment made immediately and the other at the end of two years. When the game is released, it is expected to make $1.50 million per year for three years after that. What is the net present value (NPV) of this decision if the cost of capital is 8%? OA $2,806,405 OB. $3,332.606 OC. $1,929,404 OD. $1,754,003
ANSWER PART C PLEASE Mett Co. is planning to develop a new product. A year after the launch of the product, itcan generate additional cash flows for the company of either £250,000, £110,000,£90,000 or £50,000, with all four scenarios equally likely. The project requires an initialinvestment of £90,000. The company’s beta is 0.65, its cost of capital is 6%, and the riskfree rate is 3%. Assume perfect capital markets. a) What is the Net Present Value (NPV) of the project? b) Suppose that the project is sold to investors as an all-equity firm to raise funds forthe initial investment. The cash flows of the project will be distributed to equityholders in one year. How much money can be raised in this way – that is, what isthe initial market value of the unlevered equity? Explain your answer c) Suppose the initial £90,000 is raised by borrowing at the risk-free interest rateinstead of issuing equity. What are the cash flows to equity and debt holders, andwhat is the initial value of the…
3.4 Springsteen Plc is considering a project with initial costs of £ 5,000,000. The project has a 5-year lifespan. The firm uses the straight-line depreciation approach to depreciate its fixed assets. Sales are forecast to be 650 units per year and the firm expects to sell the product for £5,500 per unit. The variable expenses for producing this output is estimated to be £2,800 per unit and the fixed costs are expected to be £290,000 per year. The required return is 12.5 percent and the relevant tax rate is 30 percent. The project will not have anyimpact on working capital requirements. The finance department believes that the price is accurate to within a±1.5 percent range while costs may vary by ±4 percent. (i) What is the sensitivity of the baseline operating cash flow to changes in thesales price? Interpret your answer.
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Question 2 A corporate treasury estimates that an investment of $ 50 million to expand the manufacturing capacity of its company's main product line would generate additional cash flows of $ 12 million per year for 5 years. Assuming a discount rate of 8% calculate: a) The Net Present value of the stream of returns of the expansion b) The profitability index c) The internal rate of return d) Should the company proceed with the investment?
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Question 4 a. The stock market provides an annual return of 8.4%. A risky project costs £35,000 but provides £20,000 cash flow for two years. Would you invest in the project? Why/Why Not? b. Assume in order to undertake this project the firm needs to undertake project 2 that costs £12,000 but provides a one-year cash flow of £13,500 and project 3 that costs £8,000 but provides three years of cash flow of £3,000. Will the firm still take on the project and how much will firm value and increase? c. Your client has been given a trust fund valued at £1.25 million. He cannot access the money until he turns 65 years old, which is in 25 years. At that time, he can withdraw £24,000 per month. If the trust fund is invested at a 4.5 percent rate, compounded monthly, how many months will it last your client once he starts to withdraw the money? d. You are comparing houses in two towns in Sheffield. You have £100,000 to put as a down payment, and 30-year mortgage rates are at 8% Location 1…

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