Financial management

Illustration 2

The testing department of the Foods and Drugs Authority intend investing in a new ultra-modern

Food Testing Equipment to enhance their work and help speed up the services they render to the

general public. The technical experts estimated that, such machine will require an initial capital

outlay of GHC8, 500,000 and is expected to generate cash inflows of GHC4,400,000,

GHC4,000,000, GHC5,800,000 and GHC3,650,000 at the end of the first, second, third and fourth

year respectively. It is the policy of the Agency to dispose of the machine as scrap after its useful

life for GHC1,000,000. You are required to calculate the present value of the investment assuming the discount rate is 12% and round your answer to the nearest cedi. Determine the NPV and advise the management whether the project should be undertaken or not. calulate depreciation using the straight line method.