Last year Kent Zoo had gate receipts of 20m with merchandise sales of 10m. In order to boost Kent Zoo's finances, its management team are considering acquiring and displaying a Blue Engola (a critically endangered mammal). Given the Blue Engola's rarity, its aesthetically pleasing appearance and its reputation of being an aggressive man-eater, it is hoped that the investment would make the whole zoo more appealing and therefore boost visitor numbers. The Blue Engola can only normally be found in Blueland in the wild or in captivity). However, Blueland's government have a programme which permits a single Blue Engola to be leased for fixed 5-year periods of time to foreign zoos for a 5m fee payable at the start of the lease. Over the 5-year lease, the relevant zoo will be responsible for the costs associated with the upkeep of the animal (eg feeding, bedding etc) but the animal will be replaced if it dies, provided that death is not a result of negligence on the part of the zoo Kent Zoo have enquired about obtaining a Blue Engola in the immediate future. The management realise, and have accepted that, they won't be able to display the Blue Engola in the very first year of the lease due to statutory quarantine and testing requirements. The management team, having considered the project, have identified three possible scenarios if the project was to proceed: 1. Whilst the Blue Engola is on display gate receipts will increase by 5% and merchandise sales will increase by 3%. Upkeep costs throughout will be 600k pa. ii. Whilst the Blue Engola is on display gate receipts will increase by 10% and merchandise sales will increase by 5%. Upkeep costs throughout will be 550k pa lii. Whilst the Blue Engola is on display gato receipts will increase by 15% and merchandise sales will increase by 8%. Upkeep costs throughout will be 400k pa. a) Using a 10% risk discount rate and stating any assumptions you make, determine the NPV of each scenario assuming Kent Zoo commits to the lease immediately [6 marks] b) Calculate the Expected NPV assuming the probabilities of scenarios i., ii. and iii. are 15%, 50%, and 35% respectively. [1 mark] c) Briefly comment on your results from the first two parts. [2 marks] To help entice Kent Zoo, whose management team is indecisive, Blueland's government makes an additional offer. If the zoo takes on the Blue Engola, then after the first 5-year lease ends, Blueland will give the zoo the option, but not the obligation, to continue for an additional 5-year period at a reduced price of 4m. Assuming that: The management team would only exercise the extension option if the project has delivered a positive NPV in respect of the first 5-year period. The three scenarios are as outlined previously, and where relevant, the costs/revenues associated with each scenario would continue into the subsequent 5-year period. The same risk discount rate and other original assumptions would apply. . d) Calculate the Expected NPV of the potential 10-year project allowing for the option [4 marks] e) Briefly comment on this updated result [2 marks] f) One of the Kent Zoo managers recently undertook a training course entitled 'Business and social responsibility'. Following this, that manager has suggested that before a final decision on the project is made, Kent Zoo might wish to consider the project in light of its social responsibility. 1. Outline possible social responsibility issues or concerns this project may create for Kent Zoo. II. Briefly explain why social responsibility could be of concern to Kent Zoo's management Tax and allowance information for England and Wales (2021/22):- Personal Allowance 12,570 Capital Gains - Annual Exempt Amount 12,300 Interest - Tax free amounts: 1,000 (Basic); 500 (Higher); 0 (Additional). Also:- For low earners, up to 5,000 of interest may be taxed at 0% before applying the tax free amounts. Dividends - Tax free amount: 2,000 (Basic, Higher and Additional) Main Rates for Personal Taxation Rate Taxable income in Earned Interest Dividends Capital Capital Excess of Personal Income Gain** Gain *** Allowance () Basic 0-37,700 20% 20% 7.5% 10% 18% Higher 37,701-150,000 40% 40% 32.5% 20% 28% Additional Over 150,000 45% 45% 38.1% 20% 28% * Reduced by 1 for each 2 of adjusted net income over 100,000 to minimum of zero. ** Applies to investments, excluding residential property *** Applies to residential property but main residence is exempt UK Corporation Tax rate 19%