Question 2Jeanius plc is considering an investment of £10 million ina new trouser production plant. The project business plan is based on the followingassumptions:• The project will start on 1st January 2022. The initial investment is assumed tobe incurred at the start of the project.Production will start on 1st January 2024.• Production will be 2 million pairs of trousers each year for the first 8 years ofproduction and then increased to 4 million pairs. Profits will be £0.75 per pair oftrousers to be received at the beginning of each calendar year. Profits increase by2% each year starting in the 3rd year of production.• The plant will incur maintenance costs of £500,000 incurred at the end of eachyear after start of production. From the 6th year of production onwards,maintenance costs will increase by 3% each year.(a) Calculate(i) the discounted payback period of the project assuming an AER of 7.5% perannum(ii) the accumulated value of the project on 1st of January 2050 (before profitsare received) for the same AER(iii) the internal rate of return on 1st of January 2050 (before profits arereceived), quoted as percentage per year(b) Assume now that the investment will be funded by borrowing from a bank at aninterest rate of 10% per annum effective. The developer also invests any surplusincome in a bank account paying 5% per annum effective. Calculate the revisedaccumulation of the project on 1st of January 2050 (before profits are received).

Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: • The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. • Production will start on 1st January 2024. • Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 90% minh orting in the 2rd voor of production

Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: • The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. • Production will start on 1st January 2024. • Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 90% minh orting in the 2rd voor of production

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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Investment of £10million Use Excel
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