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Laptop plc. is planning on setting up a laptop repair centre. They estimate that:
The required investment will be £0.3m and the investment's life is expected to be 5 years.
The investment is to be depreciated using the straight line depreciation method and none of the costs are expected to be recovered at the end of the 5 years.
Total revenues from repairs are expected to be £200,000 in year one (one year from now), growing at 2.5% per annum. Staffing costs are £90,000 per year.
Administrative, advertising and general expenses associated with the centre are expected to be £20,000 per year.
All costs are expected to increase at 2.5% per annum.
The discount rate for ventures of similar risk is 12%.
Laptop plc. faces a corporate tax rate of 35%.
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Investment
-300000
Revenues
200000
205000
210125
215378.1
220762.6
Total Costs
110000
112750
115568.8
118458
121419.4
Depreciation
60000
Total Income
30000
32250
34556.25
36920.16
39343.16
Taxes
10500
11287.5
12094.69
12922.05
13770.11
AT Income
19500
20962.5
22461.56
23998.1
25573.05
CF (add depr)
79500
80962.5
82461.56
83998.1
85573.05
PV
70982.14
64542.81
58694.51
53382.31
48556.45
R=0.12
NPV
-3841.78
RCAPM
0.068
74438.2
70980.88
67692.07
64563.11
61585.83
39260.1
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