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ABC Limited made the decision to halt any new asset purchases for the last 4 years given the uncertainty in the market following the covid-19
ABC Limited made the decision to halt any new asset purchases for the last 4 years given the uncertainty in the market following the covid-19 outbreak. However, management has recently done away with this halt and has asked you to assist in determining whether it would be worthwhile for the business to invest in a new plant. The company's year-end is 31 December, and the new plant is estimated to have a cost of R800 million. Depreciation is calculated on a straight-line basis and SARS provides an allowance using a 10-year useful life on the straight-line method. The plant will enable the business to earn additional operating cash flows of R110 million for the first five years, then this is expected to reduce to 95 million for the last 5 years. The plant can then be sold in year 10 for R880 million. - All cash flows may be assumed to occur at the end of the year unless otherwise evident. - The weighted average cost of capital or discount rate is 15% - The corporate tax rate is 28% with a capital gains inclusion rate of 80%
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