Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

[29 marks] A Queensland firm sets up a manufacturing plant at a Queensland town near the Queensland-NSW border. The project needs some specialized technical expertise

image text in transcribed

[29 marks] A Queensland firm sets up a manufacturing plant at a Queensland town near the Queensland-NSW border. The project needs some specialized technical expertise and thus the firm engages the help of a foreign organization at a fee of $2000. It hires a project manager from NSW at a cost $1500, whose opportunity cost is $700. It purchases materials worth $3000 exclusive of a 10% indirect Goods & Service Tax (distortionary, materials are in addition to current supply), which is paid to the federal government, and hires otherwise unemployed local labor at a wage of $1000. Depreciation on the firm's capital equipment is $95 and it also pays $55 interest on an unrelated pre- existing debt to a Victoria based bank. The project generates revenue worth $9000, net employment benefits of $600 for the labor, a positive externality worth $300 by reigniting the town's economy, and causes pollution affecting Queensland and NSW residents worth $500 and $350 respectively. The firm pays a company tax of $200 to the Queensland government and shares the remaining profits on an 80:20 basis with the foreign organization (keeping the higher share for itself). Assuming there are no other benefits and costs, all values are present values, and Queensland entities as the referent group, answer the following: a) Consider the statement: As depreciation and interest expenses are a part of a firm's operating costs in an accountant's profit and loss statement, we need to include both of them in Market as well as Private Analysis while doing the Discounted Cash Flow analysis. State if this statement is True, Partially True (for e.g. either one or both of the expenses need to be included in one or both of the Analysis), or False. If the statement is Partially True or False, state why and modify the statement as appropriate. Explain your answers clearly (6 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Mathematical Finance Core Theory Problems And Statistical Algorithms

Authors: Nikolai Dokuchaev

1st Edition

0415414482, 978-0415414487

More Books

Students also viewed these Finance questions

Question

Demonstrate three aspects of assessing group performance?

Answered: 1 week ago