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
Holding company with more than one subsidiary company Under this type of structure, the holding company controls more than one company. For example H ltd may Own 80% of S1, 75%

Will you please summarize this mission statement of AICPA'S "The AICPA's mission is to provide members with resources, information and leadership that enable them to provide val

PVA ∞ = A(1 + k) -1 +  A(1 + k) -2 +..... + A(1 + k ) ∞ + 1 + A (1 + k) ∞ Multiplying both the sides of Eq (a7) by (1+k) provides: PVA ∞  = (1 +k) = A(1 +k) +A (1 +k)


what are methods of calculating depreciation?

Great Pumpkin Farms just paid a dividend of $3.50 on its stock.  The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.  Investors need a 16 per


a recommendation regarding the current south African vat system

Investments under the Trustee Act The act defines the categories of investment as follows:         1. Fixed interest securities are: Securities which under their te

Question: State of the Economy Probability of state occurring IBM Return (%) ATT Return (%)