Question 1 Satyam Project This company is planning to invest in a project called satyam. The management accounting department received the following information Capex Project period Revenue Supplies expense Salary Utilities Discount Rate Sale of asset @ end of project Net working Capital $17000 5 years $8000 500 2500 500 8% $4000 $4500 The company's tax rate is 27%. The project also earned $1200 as interest revenue. The capital expenditure is depreciated using straight line method over the project and will have a residual value of $6000. the company will have to a rent for $700 during the project life. REQUIRED a) Calculate the initial investment b) Calculate each year cash flow c) Calculate the terminal value of the asset used d) Calculate the NPV e) Calculate the Profitability Index [PI] Solution Question 2 An entrepreneur has to decide whether to invest in a project or not. He is provided with the following information: The cost of the capital expenditure involved is $40000 He will have to spend $7500 on net working capital that will be returned to him at the end of the project He will depreciate his capital expenditure using straight line method over the project life. The duration of the project is 4 years. Tax rate of the project is 20% His accountant has forecast a revenue of $18000 annually His annual expenses are given in the table below: Supplies expense $800 Salary expenses $1400 Utilities $ 650 Rental expenses $720 At the end of the project he will sell the equipment purchased initially (Capex] at 7000 The salvage value of capex is $5000 REQUIRED 1. Calculate the Internal rate of return (IRR] 2. If the discount rate of the project is 9%, should he accept the project