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

Which actions are most likely to directly increase cash, Which of the follo...

Which of the following actions are most likely to directly increase cash as shown on a firm's balance sheet? Explain and state the assumptions that underlie your answer. 1. It i

Amount of depreciation expense , In January 2011, Rogers Co. purchased a ma...

In January 2011, Rogers Co. purchased a machine that cost $85,000. The equipment is estimated to have a 5-year life and a salvage value of $15,000. a) Compute the amount of depr

Determine current stock price & current dividend of company, 1. Select a pu...

1. Select a publicly traded company (preferably manufacturing oriented; do not use a financial services company such as a bank or a bank holding company) and obtain a copy of their

Discuss the theoretical determinants , i.   Explain carefully what is meant...

i.   Explain carefully what is meant by a price earnings ratio. ii   Utilising a valuation model identify and briefly discuss the theoretical determinants of the ratio. iii

Group accounts, Group Accounts A company can have investments in other co...

Group Accounts A company can have investments in other companies in the form of: ordinary shares, preference shares and loan stock. The investment in ordinary shares leads to own

Writing a dissertation, I want to do a custom dissertation on IAS 40 invest...

I want to do a custom dissertation on IAS 40 investment property which needs to include a brief outline, positive as well as negative international critique with respect to the sta

Define current liability, The following items represent liabilities on a fi...

The following items represent liabilities on a firm's balance sheet: a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed. b. An a

Track traversal, Track traversal: At the end of the learning process, the r...

Track traversal: At the end of the learning process, the robot will return to the packing station. It will then wait for the user input in an in nite loop. Once the user speci es a

Assembly of financial statements, Q. Assembly of Financial Statements? ...

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

Determine the basis of the ultimate cost of the payment, Given information:...

Given information: Offered a $20 million commercial loan priced using a 3month LIBOR index+100bp. After some preliminary research, using a money center bank's swap trading desk

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