management accounting

Location A This location is in Maputsoe and, although a cheaper option, there would be higher operating costs due to the higher wages that would need to be offered to recruit suitable workers. The capital cost of plant A is M5 million. Page 2 of 4 Location B This location is in Maseru would be very near transport links, which would save the firm money, but the site is relatively expensive. The capital cost of plant B is M 10 million. Forecast information for each of the plants was produced as follows: Location A Location A Location B Location B Revenue receipts Operating payments Revenue receipts Operating payments M million M million M million M million Year 1 7.3 4.0 7.3 2.7 Year 2 7.5 5.2 7.5 3.3 Year 3 9.1 5.3 9.1 4.6 Year 4 9.8 6.5 9.8 5.5 Year 5 11.2 8.1 11.2 6.4 Additional information: i. A modification to the plant at location B to treat the pollution would need an extra capital cost of M2 million. In addition, operating payments would increase in each year by M400,000. The company's cost of capital is 10% per annum (Use 4dps for the Present Value factors) ii. Required Produce net present value calculations for the locations A and B. For Location B provide figures both for the plant in its basic form and also with the modifications to treat pollution (12marks) Page 3 of 4