1. You have just graduated from the BTEC program of UTAS and oneof your favorite courses was "Entrepreneurship." In fact, you enjoyed itso much you have decided you want to "be your own boss." Yourgrandfather has given you OMR 130000 to do whatever you wish. Healso gives you 10000 in the second year. You have decided that youwould like to purchase an old paper factory using all the money andlaunch a new tissue paper product. The problem is that you have neverbeen one to stay with any project for too long, so you figure that yourtime frame is 5 years. After 5 years you will go on to something else.The salvage value at the end of the 5th year is OMR 7000.Cash OutflowCash InflowYear(OMR)(OMR)1300001100002000023000036000048000020000It is funded by both debt and equity and currently has a weighted cost ofcapital (Discount rate) of 8%.Answer the following questions: -A. Calculate the Internal rate of return and net present value for theabove project. Critically evaluate the results and decide whetheryou should invest based on the two methods used for evaluating.Threshold limit for IRR is 14%

Given Cashflow of year 0 = -130,000 Cashflow of year 1 = -10,000 , 20,000 Cashflow of year 2 =…

ther has given you OMR 130000 to do wh res you 10000 in the second year. You have ike to purchase an old paper factory using a new tissue paper product. The problem is e to stay with any proiect for too lon g so

ther has given you OMR 130000 to do wh res you 10000 in the second year. You have ike to purchase an old paper factory using a new tissue paper product. The problem is e to stay with any proiect for too lon g so

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

1. You have just graduated from the BTEC program of UTAS and one
of your favorite courses was "Entrepreneurship." In fact, you enjoyed it
so much you have decided you want to "be your own boss." Your
grandfather has given you OMR 130000 to do whatever you wish. He
also gives you 10000 in the second year. You have decided that you
would like to purchase an old paper factory using all the money and
launch a new tissue paper product. The problem is that you have never
been one to stay with any project for too long, so you figure that your
time frame is 5 years. After 5 years you will go on to something else.
The salvage value at the end of the 5th year is OMR 7000.
Cash Outflow
Cash Inflow
Year
(OMR)
(OMR)
130000
1
10000
20000
2
30000
3
60000
4
80000
20000
It is funded by both debt and equity and currently has a weighted cost of
capital (Discount rate) of 8%.
Answer the following questions: -
A. Calculate the Internal rate of return and net present value for the
above project. Critically evaluate the results and decide whether
you should invest based on the two methods used for evaluating.
Threshold limit for IRR is 14%

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