How can investor make provision for the rehabilitation cost

Assignment Help Cost Accounting
Reference no: EM13857655

An investor is planning to buy a run-down cocoa farm in a cocoa growing area for 5 million. The plantation of about 20 acres has purposed built-houses, offices, warehouses and a network of roads. On purchase, he will immediately replant the entire plantation with a new variety of cocoa seedlings, which mature in 4 years at a cost of 2 million. It is estimated that he will be spending 700,000 p.a. on maintenance of the roads. In 8 years' time from now, all the infrastructure and buildings will be rehabilitated at an estimated cost of 4,500,000. The investor required rate of return is 83/4% and has calculated his risk premium to be 4%. Income from the investment is expected to be 2 million per annum for four years and then reduced to 1.5million per annum for the rest of the investment period. The economic lifespan of the seedlings from maturity is estimated at 6 years.

i . Calculate the total cost of the investment at the time the cocoa reaches maturity.

ii. How can the investor make provision for the rehabilitation cost and what will be the effect on the net income?

iii. Should the investor undertake the investment? Why?

Reference no: EM13857655

Questions Cloud

Information and communication technologies : Information and communication technologies are developing at a very fast rate. How have these technologies affected globalization? Do you think globalization will continue until we live in a "global village"?
Employees are offended or harmed by host country practices : What steps can be taken on the part of the internationals and their employees to avoid or resolve situations in which employees are offended or harmed by host country practices?
What sort of career are you interested in : What sort of career are you interested in? How could studying sociology help you in this career? How do you think taking a sociology course might affect your social interactions
What is the intrinsic value of the option : What is the intrinsic value of the option and what is the option's time premium at this price - What is the current selling price for a) and b)?
How can investor make provision for the rehabilitation cost : Calculate the total cost of the investment at the time the cocoa reaches maturity. How can the investor make provision for the rehabilitation cost and what will be the effect on the net income?
Chances for advancement limited by the social customs : What obligations does an international company have to ensure that its employees are not harmed, for instance, by having their chances for advancement limited by the social customs of a host country?
Industrial organization model and resource-based model : Apply the industrial organization model and the resource-based model to determine how the Walt Disney Company's Media Networks (tv portion of the company) could earn above-average returns.
Explain with examples what linear time-invariant system : Explain with examples what linear time-invariant (LTI) system is. Consider the fourth order optimal FIR filter
Universal claims processors processes insurance claims : Universal Claims Processors processes insurance claims for large national insurance companies. Most claim processing is done by a large pool of computer operators, some of whom are permanent and some of whom are temporary. The company wants to determ..

Reviews

Write a Review

Cost Accounting Questions & Answers

  Determine the budgeted factory overhead allocation rate

Determine the budgeted factory overhead allocation rate based on direct labour-hours and compute the amount of under-or-overallocated overheads.

  Advantages of a sole proprietorship and a limited liability

Describe the advantages of a sole proprietorship and a limited liability corporation - client choose an LLC or not? Explain your rationale.

  How much will monthly profits increase or decrease

how much will monthly profits increase or decrease and what unit cost is relevant for establishing a minimum selling price for these units?

  What tax issues should troy and the employees consider

Troy Department Stores offers employees discounts on merchandise carried in the store. Newly hired employees receive a 10% discount. The discount rate increases 1% each year until employees have 20 years of service.

  New orleans inc is a multidivisional company the present

new orleans inc. is a multidivisional company. the present roi for new orleans inc. as a whole is 12. new orleans inc.

  What exactly is the predetermined overhead rate

Describe what manufacturing overhead and describe how it is different than direct labor and direct materials - give at least 3 examples of typical manufacturing overhead

  Determine cost of raw materials purchased

Determine Cost of raw materials purchased and direct labor costs charged to production

  Prepare contribution margin income statement for cardinal

Prepare a contribution margin income statement for Cardinal assuming it sells 1,100 birdhouses this year -  Determine how many birdhouses it must sell to generate this amount of profit

  Determine payout ratio and the return on common stock equity

Determine the payout ratio and the return on common stock equity.

  Primary input to the programming phase of the ppbe process

Primary input to the Programming Phase of the PPBE process and analysis of the latest Contract Performance Report on its Cost Plus Award Fee contract with Cardinal Industries.

  Determine the 2011 balance sheet items

Determine the 2011 balance sheet items current assets and shareholders equity

  Qthe cupcake factory plans to start a new retail store in

qthe cupcake factory plans to start a new retail store in medina ohio. the cupcake factory may sell specialty cupcakes

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd