Question 2. Hyde Park Tours Limited is planning to diversify its operations by exploring two new business opportunities. Opportunity City Bus Tour has an expected working life of four years, requires £175000 of initial capital expenditure and a further £50000 of working capital. At the end of year 4 the residual value is forecast to be £100000. Opportunity Cruise also has an estimated working life of four years and has an initial cash outflow of £250000 which includes working capital of £135000. At the end of year 4 the residual value is estimated to be £100000. Estimates for net cash flow for both projects are as follows: Year City Bus Tour Cruise 1 £90,000 £95,000 2 £75,000 £90,000 3 £70,000 £85,000 4 £75,000 £80,000 Year Present Value Rates at 15% Present Value Rates at 30% 1 0.870 0.769 2 0.756 0.592 3 0.658 0.455 4 0.572 0.350 Required: - a. Utilising the above information, numerically assess the projects using: - - Payback - Net Present Value using the present value rates at 15% - Internal rate of return using present value rates at 30% b. Based on your evaluation, make recommendations as to which project should be undertaken? Please justify your recommendations using appropriate academic literature.
Question 2. Hyde Park Tours Limited is planning to diversify its operations by exploring two new business opportunities. Opportunity City Bus Tour has an expected working life of four years, requires £175000 of initial capital expenditure and a further £50000 of working capital. At the end of year 4 the residual value is forecast to be £100000. Opportunity Cruise also has an estimated working life of four years and has an initial cash outflow of £250000 which includes working capital of £135000. At the end of year 4 the residual value is estimated to be £100000. Estimates for net cash flow for both projects are as follows: Year City Bus Tour Cruise 1 £90,000 £95,000 2 £75,000 £90,000 3 £70,000 £85,000 4 £75,000 £80,000 Year Present Value Rates at 15% Present Value Rates at 30% 1 0.870 0.769 2 0.756 0.592 3 0.658 0.455 4 0.572 0.350 Required: - a. Utilising the above information, numerically assess the projects using: - - Payback - Net Present Value using the present value rates at 15% - Internal rate of return using present value rates at 30% b. Based on your evaluation, make recommendations as to which project should be undertaken? Please justify your recommendations using appropriate academic literature.
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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Question 2.
Hyde Park Tours Limited is planning to diversify its operations by exploring two new
business opportunities. Opportunity City Bus Tour has an expected working life of four
years, requires £175000 of initial capital expenditure and a further £50000 of working
capital. At the end of year 4 the residual value is
also has an estimated working life of four years and has an initial
which includes working capital of £135000. At the end of year 4 the residual value is
estimated to be £100000. Estimates for net cash flow for both projects are as follows:
Year City Bus Tour Cruise
1 £90,000 £95,000
2 £75,000 £90,000
3 £70,000 £85,000
4 £75,000 £80,000
Year
1 0.870 0.769
2 0.756 0.592
3 0.658 0.455
4 0.572 0.350
Required: -
a. Utilising the above information, numerically assess the projects using: -
- Payback
-
-
b. Based on your evaluation, make recommendations as to which project should be undertaken?
Please justify your recommendations using appropriate academic literature.
Transcribed Image Text:Question 2.
Hyde Park Tours Limited is planning to diversify its operations by exploring two new
business opportunities. Opportunity City Bus Tour has an expected working life of four
years, requires £175000 of initial capital expenditure and a further £50000 of working
capital. At the end of year 4 the residual value is forecast to be £100000. Opportunity Cruise
also has an estimated working life of four years and has an initial cash outflow of £250000
which includes working capital of £135000. At the end of year 4 the residual value is
estimated to be £100000. Estimates for net cash flow for both projects are as follows:
Year
City Bus Tour
Cruise
1
£90,000
£95,000
£90,000
£85,000
£80,000
2
£75,000
£70,000
4
£75,000
Year
Present Value Rates at 15%
Present Value Rates at 30%
1
0.870
0.769
0.756
0.592
3.
0.658
0.455
4
0.572
0.350
Required: -
Transcribed Image Text:Required: -
a. Utilising the above information, numerically assess the projects using: -
Payback
Net Present Value using the present value rates at 15%
Internal rate of return using present value rates at 30%
b. Based on your evaluation, make recommendations as to which project should be undertaken?
Please justify your recommendations using appropriate academic literature.
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