4 Part 11: Workout Question (20%) TEAM Consulting PLC is considering a graduate program in partenership with Addis Ababa University in Accounting and Finance without thesis. The program will take only to year (these semesters) to complete and remains effective for the coming five years beginning 2007 LC Year 2007 2008 2009 2010 2011 Potential intake (no. of students) 50 75 75 35 100 Sections 2 3 3 3 Tuition Foc per Credit Hour 600 600 700 700 800 Registration Foc per semester 250 250 300 300 350 The students will register three times a year (per semester). In a semester, 10 credit hours of courses (four to five courses) will be delivered for each section. Instructors are paid Br 400 per credit hour per section per week for 16 weeks in a semester Additional costs are: Salary and other benefits of administrative staff total Br 12,500 per month Monthly rent for class rooms and offices amount to Be 25,000. Utilities will cost on average Br 5.000 per month Miscellaneous expenses are estimated to be Br 3.000 per month on average The project demands Br 1,000,000 initial investment which include the following: o Computers and Accessories. Br 400,000 o Fixtures, fittings and office equipment... 300,000 Other fixed assets. 200.000 Additional networking capital.... 100,000 The fixed assets are to be depreciated using straight line method over 5 years with salvage value of Br 50,000 for cach fixed asset category. Upon completion of the life of the project, all the networking capital will be recovered and each category of fixed assets will be disposed off at their salvage values. The tax rate is 30% The project will be financed by generating 30% capital from the owners and the remaining from bank loan to be repaid over the term of the project in equal annual installments plus 10% interest on the unpaid balance beginning Nehassie 30. 2007 E.C.. Required: 1. Determine net cash flows from the project over the five years. 2. Compute pay back period of the project and make a decision assuming 3 years acceptable time limit 3. Determine average accounting rate of return and decide whether to accept or reject the project assuming owners expect minimum 15% return from similar investments. 4. Compute Net present value of the project using 12% discount rate and make a decision. 5. Compute the Internal Rate of Return of the project and make a decision.. (Hint: Discount rate 22% yields positive net present value) S... . Bonus Question (3 points) 1. What was the title of your project paper? 2. State any two findings of your feasibility study. (NPV, IRR, ARR, PBP, etc) 8 4 Part 11: Workout Question (20%) TEAM Consulting PLC is considering a graduate program in partenership with Addis Ababa University in Accounting and Finance without thesis. The program will take only to year (these semesters) to complete and remains effective for the coming five years beginning 2007 LC Year 2007 2008 2009 2010 2011 Potential intake (no. of students) 50 75 75 35 100 Sections 2 3 3 3 Tuition Foc per Credit Hour 600 600 700 700 800 Registration Foc per semester 250 250 300 300 350 The students will register three times a year (per semester). In a semester, 10 credit hours of courses (four to five courses) will be delivered for each section. Instructors are paid Br 400 per credit hour per section per week for 16 weeks in a semester Additional costs are: Salary and other benefits of administrative staff total Br 12,500 per month Monthly rent for class rooms and offices amount to Be 25,000. Utilities will cost on average Br 5.000 per month Miscellaneous expenses are estimated to be Br 3.000 per month on average The project demands Br 1,000,000 initial investment which include the following: o Computers and Accessories. Br 400,000 o Fixtures, fittings and office equipment... 300,000 Other fixed assets. 200.000 Additional networking capital.... 100,000 The fixed assets are to be depreciated using straight line method over 5 years with salvage value of Br 50,000 for cach fixed asset category. Upon completion of the life of the project, all the networking capital will be recovered and each category of fixed assets will be disposed off at their salvage values. The tax rate is 30% The project will be financed by generating 30% capital from the owners and the remaining from bank loan to be repaid over the term of the project in equal annual installments plus 10% interest on the unpaid balance beginning Nehassie 30. 2007 E.C.. Required: 1. Determine net cash flows from the project over the five years. 2. Compute pay back period of the project and make a decision assuming 3 years acceptable time limit 3. Determine average accounting rate of return and decide whether to accept or reject the project assuming owners expect minimum 15% return from similar investments. 4. Compute Net present value of the project using 12% discount rate and make a decision. 5. Compute the Internal Rate of Return of the project and make a decision.. (Hint: Discount rate 22% yields positive net present value) S... . Bonus Question (3 points) 1. What was the title of your project paper? 2. State any two findings of your feasibility study. (NPV, IRR, ARR, PBP, etc) 8