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

Ask an Expert

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

Write your message here..

Related Questions

Personal representatives duties-executorship law, Personal representatives ... Personal representatives duties Personal representation has the following duties; 1) To provide and pay out of the estate of the deceased, the expenses of a reasonable funeral

Callable preferred stock, Callable Preferred Stock On March 4, 2013, Hein C... Callable Preferred Stock On March 4, 2013, Hein Corporation issues 1,000 shares of $100 par preferred stock for $125 per share. The stock is not callable by the corporation until 3

Presumption of survivorship, PRESUMPTION OF SURVIVORSHIP Where two or m... PRESUMPTION OF SURVIVORSHIP Where two or more persons have died in circumstances rendering it uncertain which of them survived the other or others, the deaths shall, for all pu

Limitations of financial accounting, LIMITATIONS O F FINANCIAL ACCOUNT... LIMITATIONS O F FINANCIAL ACCOUNTING 1. Simply transactions which can be calculated in terms of money can be recorded in the books of accounts. Actions, though important t

Profit on initial investment, The common stock of the PP Corporation has be... The common stock of the PP Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out that range in the next 3 mont

Net cash provided by operating activities was?, 50. In preparing a company'... 50. In preparing a company's statement of cash flows for the most recent year on the indirect method, the following information is available: 52,000-Net income for the year 18,00

Pre-adjustment, security service= R38570 the annual security services contr... security service= R38570 the annual security services contract has been taken out on 1 March 2012. The fee was increased by 10% from january 2013 and the fee has already been paid

What is the break-even sales, If fixed costs are $259,238, the unit selling... If fixed costs are $259,238, the unit selling price is $112, and the unit variable costs are $63, what is the break-even sales (units)?

AFM, I need help with assignment completeion I need help with assignment completeion

Completed executions-bankruptcy, Completed executions A judgement credi... Completed executions A judgement creditor cannot retain the "benefit" of an execution or attachment, unless he has completed it- Before the date of the receiving order,