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please need help on this.. thank you Proposal The Board of Directors of Excellent Telephone Service Ltd at a recent meeting discussed the possibility of
please need help on this.. thank you
Proposal The Board of Directors of Excellent Telephone Service Ltd at a recent meeting discussed the possibility of opening a new unit to provide mobile money service to take advantage of the newly regulated industry. The Finance Director has presented a five-year estimates for the new venture as: Year 0 2 4 5 GH^000 GH*000 GH000 GH000 GH000 GH^000 Cost of capital asset (200) Total investment in net working capital (20) (25) (30) (35) (35) Gross Fees 250 300 350 352 552 Direct and other costs (155) (185) (215) (215) (195) Depreciation (40) (40) (40) (40) (40) Interest (24) (24) (24) (24) (24) Profit 31 41 Net total assets 220 200 211 220 240 For taxation purposes, capital allowances will be available against the taxable profits of the venture, at 25% per annum on a reducing balance basis and in year 5 any balance would be granted as additional capital allowance. The rate of tax on taxable profits is 25% and tax is paid one year in arrears. The capital assets will have a zero-salvage value at the end of 5 years. The after-tax weighted average cost of capital is estimated to be 24% per anum. Required: a) Detemine the viability of the project using Net Present Value (NPV) technique and advise the Board of Directors whether to invest or not. (12 marks) 51 71 71 190 b) Recommend THREE strategies which the Board of Directors could implement to give Excellence Telephone Service Ltd a competitive edge. (6 marks) (Total: 40 marks)Step by Step Solution
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