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CAPITAL BUDGETING DECISION MAKING DATA Cost of Project = $180.00 m Life of Project = 7 yrs Use Stratight Line Depreciation to Book Value of

CAPITAL BUDGETING DECISION MAKING DATA

Cost of Project = $180.00 m
Life of Project = 7 yrs
Use Stratight Line Depreciation to Book Value of ZERO.
This Project requires building a Mfg Plant in Ghana.
Plant will produce Bi-Cyle Parts.
In addition to Cost of Project, it is estimated that
ST Investment of $ 35m will be required, 90% of this
investment would be recoverable at the termination of
the Project.
Salvage Value of Plant at end of 7th yr = $75.00 m
IMPACT OF THE PLANT
1 Revenue in the First year will be = $50.00 m
2 Estimated Reve growth per yr = 10%
3 1st yr expenses = $20.00 m
4 Estimated growth in Expenses per yr= 8%
COMPANY POLICY
1 Use a Discount Rate of: 10%
2 The Company is in 21% Marginal Tax Bracket (MTB)
Questions:
1 First develop a Time-Line Digram and then calculate all of the
CAPITAL BUDGETING Criteria.
2 Shoud this Project be accepted or not?
Give your reasons based on the Capital Budgeting Criteria.

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