Question
Jirani Chemists is putting up a 5-year project. The project is expected to generate the following sales revenue: Year 1 2 3 4 5 Sales
Jirani Chemists is putting up a 5-year project. The project is expected to generate the following sales revenue:
Year | 1 | 2 | 3 | 4 | 5 |
Sales Revenue | 750,000 | 780,000 | 700,000 | 900,000 | 950,000 |
The project requires an initial cash outlay of one million shillings and annual operating expenses of Kshs 300,000 p.a. the project will have a salvage value of Kshs 200,000 at the end of its economic life. The firm applies a straight-line method of depreciation for all new projects. All the income will be subjected to a tax rate of 40%. The cost of capital is 12%.
Required:
Prepare a schedule to show the cash flows generated by the project. (8 marks)
Evaluate the project using the following techniques:
Regular payback period (2 marks)
Discounted payback period (2 marks)
ARR (2 marks)
NPV (2 marks)
Internal rate of return (2 marks)
Profitability index
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