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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 207

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 207

Essentials Of Investments
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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If done on excel it would be greatly appreciated.
(a) Calculate (i) the discounted payback period of the project assuming an AER of 7.5% per annum (ii) the accumulated value of the project on 1st of January 2050 (before profits are received) for the same AER (iii) the internal rate of return on 1st of January 2050 (before profits are received), quoted as percentage per year b) Assume now that the investment will be funded by borrowing from a bank at an interest rate of 10% per annum effective. The developer also invests any surplus income in a bank account paying 5% per annum effective. Calculate the revised accumulation of the project on 1st of January 2050 (before profits are received).
Transcribed Image Text:(a) Calculate (i) the discounted payback period of the project assuming an AER of 7.5% per annum (ii) the accumulated value of the project on 1st of January 2050 (before profits are received) for the same AER (iii) the internal rate of return on 1st of January 2050 (before profits are received), quoted as percentage per year b) Assume now that the investment will be funded by borrowing from a bank at an interest rate of 10% per annum effective. The developer also invests any surplus income in a bank account paying 5% per annum effective. Calculate the revised accumulation 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 2% each year starting in the 3rd year of production. . The plant will incur maintenance costs of £500,000 incurred at the end of each year after start of production. From the 6th year of production onwards, maintenance costs will increase by 3% each year.
Transcribed Image Text: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 2% each year starting in the 3rd year of production. . The plant will incur maintenance costs of £500,000 incurred at the end of each year after start of production. From the 6th year of production onwards, maintenance costs will increase by 3% each year.
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