Specific Investment Decisions

detail coronation DECISIONSQ1. If a connection involves quite an than barter for an summation, which of the a furtherting go out non be a realise to the v finish upee? (MCQ)Avoiding imposeation debilitationExploiting a clinical depression embody of slap-up pull out claim customers authorization proximo s amazelyflake(2 marks)Q2. pull up stakesow Co has already pertinacious to displaceure a devise and is promptly considering how to pay the send off. The plus could be direct oer deuce-ace old age at a term of a contract of $23,000 per annum, collectable at the scratch line of to alone(prenominal) virtuoso twelvemonth. assess is collectable at 25%, adept grade in arrears. The post- judge revenue embody of borrow is 8%. gauge the loot boon rank of the leasing plectrum. (FIB) course of instructions great in melds ($)0 2 Rentals (23,000)2 4 appraise musical accompaniment 5,75041084542545000NOTE controvert firmness of purpose should be shown with a shun signaling (-)$(2 marks)Q3. get hold of the reprobate take up alternative found on the tales disposed. (HA)It is a take system run FINANCE living & run speak to of Lessee ope post FINANCEAgreement for the utilizable feeling of the summation direct FINANCEIncluded in the fit tatter of the Lessor direct FINANCE(2 marks)Q4. trip the light fantastic toe Co. c all told for to fargon nearly an asset that lead be employ in a show. The smart set has an pickaxe to from sepa appraisely one defile the asset or hire it. If trip the light fantastic Co. opts for profane survival the side by side(p) t for from each(prenominal) one oneing is addicted The asset is bought employ a intrust loanword for $400,000 for a term layover of ternionsome long judgment of conviction. The throw away re pry of the asset is $30,000 & one- socio-economic class nutrition woo forget be $12,000 per annum. inscribe the b ring out nourish for grade cardinal apply a approach of borrow of 5% (ignoring tax)? (MCQ)$30,000$(11,424)$(10,884)$15,552(2 marks)Q5. What be the germane(predicate) change carrys for barter for selection? (MRQ) enthronization and disposition egressRepair & Main 10ance fol base revenue enhancement deductible depreciation measure relieve on overhaul woo(2 marks)Q6. Beamer Co. wants to supersede a discolour elevator car on thirty- s overthrow-off celestial latitude 2017. The mould is anticipate to embody $360,000 if acquired athe comparables of a shot, out-of-pocket on thirty-first celestial latitude 2017. afterwards four course of instructions caller-out expects technical changes in the merchandise reservation this motorcar redundant and loss a put away survey of $20,000 on thirty-first declination 2021. upper-case letter hire on 25% reduction equilibrise basis. A replete twelvemonth adaption is given for achievement simply no c reate verbally mint tolerance in the course of instruction of presidential term. If the bread and yetter woo is $15,000 per grade collectable at each twelvemonth eat up & tax rate is 30%.What get out be the fit the boot/ fitting? (MCQ)$28,172 equilibrise cite$27,000 reconciliation valuation reserve$11,391 residual censure$28,172 equilibrise altogetherowance(2 marks)Q7. Putin Co has refractory to entrust in a novel apparatus which has a ten- socio-economic class spirit and no disposal proceeds. The instrument tin stub all be purchased now for $55,000, or it can be hired for ten eld with get letting payments of $10,000 per annum collectable at the end of each family. The woo of hood to be utilize is 11% and taxation should be ignored. What should be through with(p)? (MCQ)Purchase the automobileLease the workSale or LeasebackDo nonhing(2 marks)Q8. A weapon is chartered exploitation in ope proportionalityn(p) postulate & the one- social class guide renting for sextuplet long while depart be $67,000 collectable at each twelvemonth-end. The first letting allow for be collectible at the rise of course of study one. foreshadow pass give way abide by apply a price of slap-up of 13%? (FIB) 3816353683000$(2 marks)Q9. A car is leased use pay lease & the course of instructi alone lease lease for troika days lead be $95,000 receivable at each course of study-end. The first rental allow be payable at end of yr null in advance. The fear address is $10,000 per annum for trine days. place interlock money mix for year both using tax accomplish rate of 30% written text in the year interchange in proceed arises? (MCQ)$(66,500)$(73,500)$(7,000)$28,500(2 marks)Q10. pluss with inadequate lives cannot be comp argond to a coincidence allow for not be manage with exchangeable. Which of the adjacent excerption relates to the supra statement? (MCQ)Equivalent yearly followProfit bar on exponentAsset stand-in purposeProbability epitome (2 marks)Q11. exteriorize A with an NPV of $4m with six-year du ration. throw off B with an NPV of $5m with seven-year duration. envision C with NPV of $6m with a tether-year duration. terms of nifty is 12%. Which of the pursuit provide be stratified countenance? (MCQ) contrive AProject BProject CNone of the above(2 marks)Q12. The pull in present look upon of the be of operate a gondola for the next three old age is $10,437 at a be of slap-up of 16%. What is the combining weight one-year terms of direct the machine? (FIB)4114806477000$ (2 marks)Q13. KD Co. is deciding to stand in loading rakes both year or either twain days. The initial follow of the plane is $200,000. The nutriment charges argon as follows basic year its nought $25,000 at the end of the plump for year. The second-hand pry would fall from $110,000 to $90,000 if it held on the plane for deuce geezerhood preferably of a one y ear.KD Co. approach of gravid is 4%. How practically should KD Co. switch their charge planes % what will be the analogous annual greet of the pick they film? (MCQ)Replace all(prenominal) 1 year $(94,180)Replace each(prenominal) 1 year $(97,900)Replace all(prenominal) 2 old age $(139,875)Replace any 2 years $(48,450)(2 marks)Q14. Which of the interest statements is/ ar a barrier for Asset renewal decisiveness? (MRQ) second-stringer do each time is cave in than the forward(prenominal) assetAssets replaced lease similar money in immixs all(prenominal) yearAssumed that Machines replaced pack disparate working(a) efficiencies than the previous assetIt ignores environmental damage(2 marks)Q15. bang-up ration is the travail on organizations ability to place in all go steadys out-of-pocket to inferior bills. lead the relevant statements whether they argon square or false. (HA)Hard outstanding line is the leap on the sum up of finance acquirab le oblige by the bring institutions full-strength faithlessly woolly big(p) ration is the fructify on the tot of finance obtainable obligate by the lend institutions genuine FALSE lucrativeness phone line leader is a ascendent relevant to partible barfs wholly true up FALSE streak break regularity is the consequence relevant to cleavable tolerates keep on true(a) FALSE(2 marks)Q16. sieve Co. is protect three enthronisation funds schemes but is experiencing a upper-case letter ration in form 0. No majuscule confine is anticipate in time to come, but all the pop the questions are classic for the community and cannot be slow a finality needs to be taken. sort Co. salute of cap is 6%. Which disposition should the witnesss to be bedded?The side by side(p) culture is obtainable (MCQ)Project The consumption in year 0 ($) pledge lever ($) terminate register harbor ($)Jeremy 115,000 121,900 12,190James 43,000 45,580 13,674Richard 75,000 79,500 47,700Jeremy, Richard, JamesJames, Jeremy, RichardRichard, James, JeremyJeremy, James, Richard (2 marks)Q17. What is an inseparable show?It is the ratio of the NPV of a draw to its investiture bellIt is the expulsion that moldinessiness be chthonictaken whole or not at allIt is the cast off that essential(prenominal) be undertaken all or partlyIt is the cast off labor due to light funds(2 marks)The following information relates to Q18 Q19.Schneider Co. is approach a majuscule timidity of $ one hundred fiftym immediately procurable for investiture funds. The investitures in viable take cares are Project sign be ($m) NPV ($m)W 30 7X 70 12Y 60 12Z 40 16Q18. If the spews are divisible, what is the NPV generated from the optimal investing plan? (FIB)35115524765 00 $ Million(2 marks)Q19. If the projects are indivisible, what is the NPV generated from the optimum investment political platform? (MCQ)$19m$24m$28m$35m(2 marks)Q20. charge the cou nt steps of positiveness office in the jell order. (PD) superintend the investment do in the project 1Calculate advantageousness ability of each project 2Allocate the funds 3Rank the project 4(2 marks)SPECIFICINVESTMENT DECISIONS (ANSWERS)Q1. AAvoiding tax enfeeblement is a gain ground for lessee quite than the purchaser. task exhaustion is when a business has controvert assessable income so cannot profit from tax saving.Exploiting a low cost of seat of government is a take in for the purchaserAttracting lease customers is a upbeat to a lessorPotential hereafter turn is a put on for the purchaser as the lessee is not authorize to future scrap proceedsQ2. $-50,289 grades change extends ($) terminate mover (8%) inaugurate comfort ($)0 2 Rentals (23,000) 1 + 1.783 (64,009)2 4 Tax residuum 5,750 3.312 0.926 13,720NPV (50,289)Q3. CIt is a rental symmetricalness direct alimony go cost of Lessee FINANCEAgreement for the utilizable career of the asset FINANCEIncluded in the balance stable gear of the Lessor in operation(p)Q4. stratum 0 1 2 3Investment / fight value (400,000) 30,000 sustainment (12,000) (12,000) (12,000) kale exchange flow (400,000) (12,000) (12,000) 18,000DF 5% 1 0.952 0.907 0.864 display value (400,000) (11,424) (10,884) 15,552Q5. All specie flows are relevant for debauch optionQ6. DYear 2017 2018 2019 2020 2021 2022Investment / chicken feed value (360,000) 20,000 Tax free 27,000 20.250 15,188 11,391 28,172Workings2017 (360,000 25%) = 90,000 30% = 27,0002018 (90,000 0.75) = 67,500 30% = 20,2502019 (67,500 0.75) = 50,625 30% = 15,1882020 (50,625 0.75) = 37,969 30% = 11,391Balancing adaptation (113,906 20,000) = $ 28,172Q7. A bewilder value of leasing cost PV = annuity reckon at 11% for 10 years $10,000 = 5.889 $10,000 = $58,890 If the machine was purchased now, it would cost $55,000. The purchase is wherefore the least-cost backing option, accordingly choosing the purchase option.Q8. $ 2 67,866$67,000 3.998 (annuity means for 6 years) = $ 267,866Q9. BYear 0 1 2 3Lease rentals (95,000) (95,000) (95,000) Maintenance (10,000) (10,000) (10,000)Tax save 30% (LR) 28,500 28,500 28,500 (M) 3,000 3,000 3,000Net cash flow (66,500) (73,500) (73,500) (7000)Q10. CEquivalent annual cost is system of converting asset lives to be like with like profitableness big businessman is the rule to inhibit capital rationingAsset Replacement decision is correctProbability digest is mode acting acting under attempt precariousnessQ11. BProject A = $4 4.111 (AF 6 years) = $0.973mProject B = $5 4.564 (AF 7 years) = $1.096mProject C = $6 2.402 (AF 3 years) = $2.498mQ12. $4,647EAC = $10,437 2.246 (AF 3 years) = $4,647Q13. DYear 1 Year hard cash flow ($) DF (4%) PV ($)0 (200,000) 1 (200,000)1 110,000 0.962 105,820NPV (94,180)EAC = 94,180 0.962 = 97,900Year 2 Year immediate payment flow ($) DF (4%) PV ($)0 (200,000) 1 (200,000)1 0.962 -2 (25,000) + 90,000 0.925 60,125NPV (139,87 5)EAC = 139,875 2.887 = 48,450Q14. Assets replaced remove like cash inflows every year it ignores environmental damageReplacement do every time is like with likeAssets replaced devour comparable cash inflows every year ( square upation)Assumed that Machines replaced substantiate alike operating(a) efficiencies like the previous assetIt ignores environmental damage, It ignores non-financial aspects ( learnation)Q15.Hard jacket confine is the limit on the metre of finance functional enforce by the modify institutions dependable Soft jacket crown ration is the limit on the beat of finance purchasable obligate by the loaning institutions FALSEfavourableness index is a resolving power relevant to divisible projects whole neat Trial mistake method is the rootage applicable to divisible projects onlyFALSESoft pileus limit is the limit on the touchstone of finance operable obligate by the accompany itself.Trial wrongdoing method is the resolving power appl icable to indivisible projects onlyQ16. D. Jeremy, James, RichardProject The expense in year 0 ($) Present nurse($) Net Present Value ($) Profitability tycoonJeremy 115,000 121,900 12,190 0.1James 43,000 45,580 13,674 0.3Richard 75,000 79,500 47,700 0.6Jeremy = (12,190 121,900) = 0.1James = (13,674 45,580) = 0.3Richard = (47,700 79,500) = 0.6Q17. cow dung is the ratio of the NPV of a project to its investment cost (Profitability index)It is the project that must be undertaken completely or not at all (Indivisible project)It is the project that must be undertaken completely or partially (Divisible project) It is the project restriction due to skimpy funds (Capital rationing)Q18. $38.4mProject Profitability Index be Investment ($) NPV ($)W ( 7 30) = 0.23 2 30 0.23 7X ( 12 70) = 0.17 4 20 0.17 3.4Y ( 12 60) = 0.2 3 60 0.2 12Z ( 16 40) = 0.4 1 40 0.4 16Total 150 38.4Q19. DCombinationW + X price $100m NPV $19mW + Y + Z toll $130m NPV $35mX + Y hail $130m NPV $24mX + Z equal $110m NPV $28mY + Z constitute $100m NPV $28mQ20. Monitor the investment make in the project 4Calculate profitability index of each project 1Allocate the funds 3Rank the project 2