Virtual learning expects net revenues, Financial Accounting

Virtual Learning Inc., an Ontario-based company on the cutting edge of technology, is analyzing the possibility of providing university-level courses for York University. This virtual university setting would provide the next generation of online courses by using 3D simulated digital environment where users can attend lectures, work on group assignments, write exams and socialize using their own avatar. You have been hired by Virtual Learning to perform an NPV analysis on the project.  Below are the estimated expenses and revenues. Assume the cost of capital is 7% and the expected life of this new generation of online courses is four years.

  • Annual revenues: $900,000 first year, growing at an annual rate of 30% thereafter.
  • Annual expenses: $175,000 first year, declining at an annual rate of 3% thereafter.
  • Increase in working capital: $160,000 immediately, half of which will be recovered at the end of year 3 and the remainder recovered at the end of year 4.
  • Cost of R&D incurred over the past two years: $350,000
  • Cost of equipment: $3,000,000
  • Expected salvage value at the end of 4 years: $50,000
  • CCA rate: 40% declining balance (half-year rule applies)
  • Tax rate: 10% (low rate due to tax subsidies received from Ontario government)

 

As well, Virtual Learning expects net revenues (after-tax) from existing online courses it supplies to be reduced by $150,000 each year.

(a) Should York proceed with this virtual course project?

(b) Does your decision change if depreciation is calculated straight-line (over four years), instead of declining balance?  (the half-year rule still applies).

Posted Date: 2/20/2013 2:51:27 AM | Location : United States







Related Discussions:- Virtual learning expects net revenues, Assignment Help, Ask Question on Virtual learning expects net revenues, Get Answer, Expert's Help, Virtual learning expects net revenues Discussions

Write discussion on Virtual learning expects net revenues
Your posts are moderated
Related Questions
Question: The manager of Ben and Jerry's Ice Cream is told that the direct material quantity variance for cherries in Cherries Garcia Ice cream is favorable. What could explain thi

INTER-COMPANY TRANSACTIONS AND BALANCES As the associate company is not consolidated, care should be taken when there are trading transactions and inter-company balances between

ACCOUNTS REQUIRED This can be summarized depending on the nature of the situation. In a receivership you may be required to prepare a receivers receipt and payments. In the pro

Students are to prepare and report as a financial advisor to an investor as to whether the public company selected is a suitable investment for the investor. In preparing the essay

ASSOCIATE COMPANIES (IAS 28) An associate company is a company in which the investing company owns more than 20% but less than 50% of the voting rights.  This means that the inve

After the accounts are adjusted at the end of the year, Accounts Receivable has a balance of $215,000, Uncollectible Accounts Expense has a balance of $17,500, and Allowance for Do

methods of preparation of trial balance

The common stock of the CC Corporation has been trading in a narrow price range of around $50 for months, and you are convinced it is going to stay in that range for the next 3 mon

Question 1: (a) "MTEF is about resource control, resource allocation and resource utilization." You are required to identify and discuss the different stages of MTEF. (N

Assertion -Implicit or explicit representations by an entity's management which are embodied infinancial statement components and for which AUDITOR obtains and evaluates evidential