PART $2$

Question $2$

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 $2023.$ It is company policy to work five days a week for a $50-$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 trips$-$Daily sales of GHS $60.$ The value of GHS $60$ is after deducting all fuel expenses

and another incidental cost.

Cost of comprehensive insurance for the year is GHS $1200$

The monthly cost of maintenance and servicing: GHS $150$ per month

Weekly allowance for the Uber driver: GHS $50$ per week

Five sets of tyres at GHS $50$ per tyre.

The annual cost of roadworthy and inspection: GHS $750$

The annual increase in net cash flows is estimated at $5\%$ per annum for the next five years after factoting

expectations in inflation. The cost of the Hyundai Elantra was GHS $18,500.$ Makosah believes that the

Government of Ghana policy rate of $25\%$ 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.

$[5$ marks$]$

b$)$ Evaluate the proposal using the following techniques:

i$)$ Net present value

$[10$ marks$]$

ii$)$ Payback and Discounted payback period

$[5$ marks$]$

iii$)$ Assuming the second rate of $35\%,$ find the Internal Rate of Return $($IRR$)$ for the We Move.

$[3$ 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.

$[2$ marks$]$

$[$Total $=25$ marks$]$