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

a) The actual risk-free rate is 3%, and inflation is usual to be 2% for the next 2 years. A 2-year Treasury security yields 6.7%. What is the maturity risk premium for the 2-year s

Q. Assembly of Financial Statements? Assembly of Financial Statements -Providing of various accounting or data-processingservices by an accountant, output of which is in the fo

Q. Explain about Material event? Subsequent Event - Material event which takes place after the end of accounting period and before the publication of an entity's FINANCIAL STAT

What have been the dividends per share? What is the CAGR of dividends per share from 2008 to 2010? What was the retention ratio for 2008 to 2010? Calculate the DPS growth

CHARACTERISTICS OF PARTNERSHIP

If I bought a 10 year bond five years ago for 936.05. The bons make semiannual coupon payments at a rate of 8.4%. If the current price of the bonds is 1,048.77, what is the yield e

how do i find info about google inc

Illustration regarding profit that head office can claim E Ltd sets up a branch in Nyeri on 1 July 2001. Goods are sent to branch at an invoice price which is 10% above cost. S

What is the difference between financial statements prepared from the expanded accounting equation and those prepared from a trial balance?