Reference no: EM13488346
Citilinkhas a business line currently owns and runs 350 sightseeing buses and has a turnover of $10 million per annum.The current system for allocating jobs to drivers is very inefficient. Citilink is considering the implementation of a new computerised tracking system called "DigiLink". This will make the allocation of jobs far more efficient.
You are the financial analyst of the business line. You have been asked to perform somecalculations to help the Finance Director to decide whether DigiLink should be implemented. The project is being appraised over 5 years.
The costs and benefits of the new system are set out below.
i. The central tracking system costs $2,100,000 to implement. This amount will be payable in three equalinstalments: one immediately, the second in one year's time, and the third in two years' time.
ii. Depreciation on the new system will be provided at $420,000 per annum.
iii. Staff will need to be trained how to use the new system. This will cost $425,000 in the first year.
iv. If DigiLink is implemented, revenues will rise to an estimated $11 million this year, thereafter increasing by 5%per annum (i.e. compounded). Even if DigiLink is not implemented, revenues will increase by an estimated$200,000 per annum, from their current level of $10 million per annum.
v. Despite increased revenues, DigiLink will still make overall savings in terms of vehicle running costs. These costsavings are estimated at 1% of the post DigiLink revenues each year (i.e. the $11 million revenue, rising by 5%thereafter, as referred to in note iv).
vi. 6 new operators will be recruited to manage the DigiLink system. Their salaries will cost the business line $120,000 per annum in the first year, $200,000 in the second year, thereafter increasing by 5% per annum(i.e. compounded).
vii. The business line will have to take out a maintenance contract for the DigiLink system. This will cost $75,000 per annum.
viii. Interest on money borrowed to finance the project will cost $150,000 per annum.
ix. The business line's cost of capital is 10% per annum and the maximum allowable payback period is 2.5 years.
x. Ignore taxation.
(a) Assess the viability of the DigiLink project using payback period, accounting rate of return, net present value, and internal rate of return.
(b) Evaluate appropriate sources of finance for the DigiLink project in terms of suitability and their respective advantages and disadvantages.
|
Determine the price of the souvenirs
: Calculate with explanation the unit costs of the souvenirs. You should state your assumption and determine the price of the souvenirs and explain any other information that might be relevant for deciding the price
|
|
Explain produced by the h2so4 acid-catalyzed
: Ethyl p-aminobenzoate was produced by the H2SO4 acid-catalyzed, reversible reaction of paminobenzoic acid and ethyl alcohol, as depicted below. Briefly explain why one reactant (the one that's cheaper and more easily separated during work-up) was ..
|
|
Why gold will use newly acquired machine in same manner
: Gold's machine had an original cost of $70,000, accumulated depreciation to date of $34,500, and a fair market value of $60,000. Cowboy's machine had a book value of $45,000 and a fair value of $53,000.
|
|
Decision-making process
: The chief executive officer (CEO), realizes that you do not have much practice in this higher level, decision-making process and has asked you to write a memo describing your understanding of how to make important decisions.
|
|
Evaluate sources of finance for the digilink project
: Evaluate appropriate sources of finance for the DigiLink project in terms of suitability and their respective advantages and disadvantages.
|
|
Briefly explain in terms of structure and basicity
: Briefly explain in terms of structure, basicity, and solubility why Novocain® is usually administered by injection whereas benzocaine is typically used in salves.
|
|
What is wagners research and development expense for 2014
: The company allocated $20,000 in overhead to research and development. What is Wagners' research and development expense for 2014?
|
|
Explain a certain liquid has a vapor pressure
: A certain liquid has a vapor pressure of 92.0 Torr at 23.0 °C and 251.0 Torr at 45.0 °C. Calculate the value of H°vap for this liquid. What is the original boiling point
|
|
What is chambers expense associated with organization cost
: Chamber intends to capitalize and amortize intangibles over the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy, what is Chambers's expense associated with organization costs in 2017?
|