Write a short report to the investment manager, Financial Accounting

Assignment Help:

Your company is considering investing in its own transport fleet. The present position is that carriage is contracted to an outside organization. The life of the transport fleet would be five years, after which time the vehicles would have to be disposed of. The cost to your company of using the outside organization for its carriage needs is £250 000 for this year. This cost, it is projected, will rise 10% per annum over the life of the project. The initial cost of the transport fleet would be £750 000 and it is estimated that the following costs would be incurred over the following five years:

                                                                Drivers' Costs              Repairs and               Other costs
                                                                                                   Maintenance
                                                                         £                                 £                                 £
Year 1                                                          33 000                          8 000                        130 000
Year 2                                                          35 000                          13 000                      135 000
Year 3                                                          36 000                          15 000                      140 000
Year 4                                                          38 000                          16 000                      136 000
Year 5                                                          40 000                          18 000                      142 000

Other costs include depreciation. It is projected that the fleet would be sold for £150000 at the end of Year 5. It has been agreed to depreciate the fleet on a straight line basis. To raise funds for the project your company is proposing to raise a long-term loan at 12% interest per annum.

You are told that there is an alternative project that could be invested in, using the funds raised, which has the following projected results:

Payback = 3 years
Accounting rate of return = 30%
Net present value = £140 000

As funds are limited, investment can only be made in one project. Note: The transport fleet would be purchased at the beginning of the project and all other expenditure would be incurred at the end of each relevant year.

Required:

(a) Prepare a table showing the net cash savings to be made by the firm over the life of the transport fleet project.

(b) Calculate the following for the transport fleet project.

(i) payback period;
(ii) accounting rate of return; and
(iii) net present value.

The discount factors for 12% are as follows:

Year 1 0.893
Year 2 0.797
Year 3 0.712
Year 4 0.636
Year 5 0.567

(c) Write a short report to the Investment Manager in your company outlining whether investment should be committed to the transport fleet or the alternative project outlined. State clearly the reasons for your decision.


Related Discussions:- Write a short report to the investment manager

Determine the net cash provided by operating activities, Van Aalst Company'...

Van Aalst Company's comparative balance sheet and income statement for last year appear below: Comparative Balance Sheet

Financial Management, QUESTION 4: Spanking Clean (Ltd) operate a number of...

QUESTION 4: Spanking Clean (Ltd) operate a number of car washes and auto valet services. The company has experienced a reasonable trading year. They are deciding whether to pay ou

Calculate the profits for investments, Both a call and a put currently are ...

Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and expirations of 6 months.  What will be the profit to an investor who buys the call for $

Trustees right to be indemnified-trusts laws and accounts, Trustees right t...

Trustees right to be indemnified Trustees have, however, a right to be indemnified: 1. Out of trust property, for all expenses properly incurred in the execution of the tru

Journalize the transaction, received 16,000 contribution in exchange for co...

received 16,000 contribution in exchange for common stock

Dissolution of a partnership, Dissolution of a partnership A partnership i...

Dissolution of a partnership A partnership is dissolved when: It is temporary (maybe set up for a given period which has lapsed); One partner notifies the others in writ

Virtual output queuing, Please prove that the maximum throughput of input q...

Please prove that the maximum throughput of input queued switch is 0.586 when switch size N approaches infinity. Assume the incoming traffic is uniformly distributed. Please dem

Depreciation, The non current asset section of Aadil & Co. at December 31, ...

The non current asset section of Aadil & Co. at December 31, 2005 is as under:- Land Rs. 1,000,000 Office equipment Rs. 5,000,000 Less: accumulated depreciation 250,000 4,75

The fair-value method of accounting for nci., In the current year, Company ...

In the current year, Company A is formed with $630,000 in capital from the sale of 21,000 shares of stock at $30 a share. Company A, which has no other operations, immediately acqu

Breach of trust-trusts laws and accounts, BREACH OF TRUST Remedies avai...

BREACH OF TRUST Remedies available to beneficiary: Injunction, Personal action, Criminal liability. Defence of trusts: He may be relieved from liability if, in the opini

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd