Only accurate answers

A company is set up to refurbish old mills and turn them into retail outlets. The company purchases 5 mills each costing half a million pounds. One mill is purchased at the start of each of the next 5 years. The cost of refurbishment is f20,000 per mill and is payable continuously for one year after the purchase. Once the refurbishment for a particular mill is complete, retail stores pay rent to the company for the mill at a rate of f48,000 per year payable monthly in arrears. Each mill is sold 10 years after completion of its refurbishment for $600,000. The company employs a manager to run this project. She is paid $50,000 pa payable at the end of each month whilst the company has ownership of any of the mills. Calculate: (i) the net present value of the project assuming an interest rate of 4% pa effective [8] (ii) the discounted payback period [3] (iii) the accumulated profit on the day that the last mill is sold. [1] [Total 12]The directors of Homevac plc are considering a major investment proposal. The company was established 12 years ago to manufacture innovative consumer goods, such as food mixers that enable amateur cooks to produce professional results. The company was founded by Ivy Lee, who invented the basic product range. Much of the company's long-term funding came from venture capitalists and some banks. It has grown rapidly, but remains unquoted. Ms Lee is still the majority shareholder, although the venture capital organisations are represented on the board. The venture capitalists are keen to see the company expand with a view to it seeking a stock market quotation. They have conducted some initial research into the possibility of relocating the company's factory to a developing country where labour is relatively inexpensive. The net present value of this proposal is positive under a range of assumptions about costs and revenues, including the worst likely case and using a realistic discount rate. Ms Lee is concerned about this proposal on two grounds: Homevac ple makes most of its sales in its home country and has been successful in part because the company is very strongly identified as a "local business". She feels that there are risks that cannot be captured in a typical discounted cash flow analysis and that a higher-level risk analysis should be conducted. . All of her wealth is tied up in the company. She is not opposed to relocating the factory in principle, but she would require far more than a " realistic" rate of return. She wishes the proposed investment to be evaluated at a required rate of return of 25%. (i) Explain why it might be appropriate for the directors to identify the major higher-level risks that might affect the outcome of this project. [3] (ii) Outline the main risks facing this project. [7] (iii) Explain why it might be reasonable for Ms Lee to require a higher rate of return than one that had been determined by traditional investment appraisal techniques. [4] (iv) Discuss the advantages and disadvantages to the owners of Homevac plc of seeking a stock market quotation. [6] [Total 20]A company's loan stock has a nominal value of E10m and pays interest at a rate of 8% per annum on that amount. The market value of the loan stock is $7m The company has made losses for tax purposes in excess of E2m per year and anticipates that it will continue to do so for at least the period up until the repayment of the loan stock