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PART 2 Question 2 Makosah operates a transport fleet, We Move Ltd , within Accra. Through a hire purchase agreement, he is considering securing a
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Question
Makosah operates a transport fleet, We Move Ltd within Accra. Through a hire purchase agreement, he is
considering securing a Hyundai Elantra for his nephew to be used for Uber within Accra. In order to
determine the viability of the Uber business, Makosah made the following estimations for the cab for the
coming year ending December It is company policy to work five days a week for a week year. The
company also has a policy of rejecting investments which take more than three years to recover the initial
investment invested in the project.
Revenue from tripsDaily sales of GHS The value of GHS is after deducting all fuel expenses
and another incidental cost.
Cost of comprehensive insurance for the year is GHS
The monthly cost of maintenance and servicing: GHS per month
Weekly allowance for the Uber driver: GHS per week
Five sets of tyres at GHS per tyre.
The annual cost of roadworthy and inspection: GHS
The annual increase in net cash flows is estimated at per annum for the next five years after factoting
expectations in inflation. The cost of the Hyundai Elantra was GHS Makosah believes that the
Government of Ghana policy rate of per annum is the most appropriate rate to use in evaluating
company projects although, the bankers of We Move Ltd are currently charging rates above the policy rate.
Required:
As an intern working with, We Move Ltd you have been tasked with computing the annual net cash flows
for the investment opportunity over the next five years. Your computations will be useful in responding to
Makosah who has asked that you prepare a presentation showing your evaluation of the investment project.
In preparing for your presentation make sure to address the following, showing computations where
necessary:
a Identify the key stages in the capital investment decision making process.
marks
b Evaluate the proposal using the following techniques:
i Net present value
marks
ii Payback and Discounted payback period
marks
iii Assuming the second rate of find the Internal Rate of Return IRR for the We Move.
marks
iv Advise We Move Ltd on whether it would be prudent or not to go ahead with the acquisition
of the Hyundai Elantra as planned.
marks
Total marks
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