Topic: Part A (Essay): (15 marks) Critically discuss the various aspects of capital investment appraisal and explain how you could evaluate an investment proposal in a technology startup. In your discussions, you should also assess the cashflow generation, its financial viability, performance and non-financial considerations of the startup. You are expected to use relevant literatures and real business examples to support your discussions. In choosing your business examples, please do not use examples provided in class, textbooks or other sources. The report is worth 25% and has a maximum 1,500 words limit (excluding the title, tables, headings/sub-headings and references) and is to be completed individually. To successfully complete the report, students are required to provide references within the report to at least four (4) relevant scholarly articles if secondary data are used. A mark out of 100 will be awarded, which will in turn be converted to a score out of 15. Hints: In making cashflow projection, you might consider some of these factors: 1. Inflation rate 2. Interest rate outlook assumptions 3. Growth rate of cashflow (both revenue and expenses) 4. Tax rate/exchange rate 5. Terminal value of the business/asset. 6. Asset valuation of similar company Part B (Calculations): (10 marks) ERA is considering a project that would require an initial investment of $800,000 and would have a useful life of 10 years. The annual cash inflow is expected to be $350,000 and the annual cash expenses would be $110,000. The salvage value of the asset used in the project would be $50,000. The company's tax rate is 35%. For tax purposes, the entire initial investment without any reduction for salvage value will be depreciated over 10 years. The company uses a discount rate of 8%.
Topic: Part A (Essay): (15 marks) Critically discuss the various aspects of capital investment appraisal and explain how you could evaluate an investment proposal in a technology startup. In your discussions, you should also assess the cashflow generation, its financial viability, performance and non-financial considerations of the startup. You are expected to use relevant literatures and real business examples to support your discussions. In choosing your business examples, please do not use examples provided in class, textbooks or other sources. The report is worth 25% and has a maximum 1,500 words limit (excluding the title, tables, headings/sub-headings and references) and is to be completed individually. To successfully complete the report, students are required to provide references within the report to at least four (4) relevant scholarly articles if secondary data are used. A mark out of 100 will be awarded, which will in turn be converted to a score out of 15. Hints: In making cashflow projection, you might consider some of these factors: 1. Inflation rate 2. Interest rate outlook assumptions 3. Growth rate of cashflow (both revenue and expenses) 4. Tax rate/exchange rate 5. Terminal value of the business/asset. 6. Asset valuation of similar company Part B (Calculations): (10 marks) ERA is considering a project that would require an initial investment of $800,000 and would have a useful life of 10 years. The annual cash inflow is expected to be $350,000 and the annual cash expenses would be $110,000. The salvage value of the asset used in the project would be $50,000. The company's tax rate is 35%. For tax purposes, the entire initial investment without any reduction for salvage value will be depreciated over 10 years. The company uses a discount rate of 8%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Topic:
Part A (Essay): (15 marks)
Critically discuss the various aspects of capital investment appraisal and explain how you could evaluate an investment proposal in a
technology startup. In your discussions, you should also assess the cashflow generation, its financial viability, performance and non-financial
considerations of the startup.
You are expected to use relevant literatures and real business examples to support your discussions. In choosing your business examples,
please do not use examples provided in class, textbooks or other sources.
The report is worth 25% and has a maximum 1,500 words limit (excluding the title, tables, headings/sub-headings and references) and is to be
completed individually. To successfully complete the report, students are required to provide references within the report to at least four (4)
relevant scholarly articles if secondary data are used.
A mark out of 100 will be awarded, which will in turn be converted to a score out of 15.
Hints: In making cashflow projection, you might consider some of these factors:
1.
Inflation rate
2.
Interest rate outlook assumptions
3. Growth rate of cashflow (both revenue and expenses)
4.
Tax rate/exchange rate
5.
Terminal value of the business/asset.
6.
Asset valuation of similar company
Part B (Calculations): (10 marks)
ERA is considering a project that would require an initial investment of $800,000 and would have a useful life of 10 years. The annual cash
inflow is expected to be $350,000 and the annual cash expenses would be $110,000. The salvage value of the asset used in the project would
be $50,000. The company's tax rate is 35%. For tax purposes, the entire initial investment without any reduction for salvage value will be
depreciated over 10 years. The company uses a discount rate of 8%.
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