Question 12 (5 marks) A company is potentially going to receive a government grant to assist with financing a project. The grant will impact the project's useful life, revenues, expenses, operation and maintenance costs (O&M) and the required capital investment from the company. The company's after tax MARR is 12% and it pays the Australian company tax rate of 30%. Based on the probability that the company will receive the grant, the before tax cashflows for the project have the following probability distribution: Probability Annual Annual Annual Capital Investment Useful Life Revenue Expenses O&M 0.15 $500,000 $200,000 $60,000 $640,000 4 years 0.35 $ 700,000 $250,000 $75,000 $720,000 6 years 0.35 $900,000 $350,000 $105,000 $990,000 8 years 0.15 $1,100,000 $400,000 $120,000 $1,100,000 10 years (a) Determine the expected value of the project's revenues, expenses, O&M costs, capital investment and useful life (1 mark) (b) The company uses the 200% declining balance method of depreciation, with switchover to straight line depreciation. The company will sell the assets from the project for $60,000 at the end of the project's useful life. Using the expected values determined in part (a), determine the after tax cash flows over the life of the project (3 marks) (c) Determine the after tax present worth of the project (1 mark) Question 12 (5 marks) A company is potentially going to receive a government grant to assist with financing a project. The grant will impact the project's useful life, revenues, expenses, operation and maintenance costs (O&M) and the required capital investment from the company. The company's after tax MARR is 12% and it pays the Australian company tax rate of 30%. Based on the probability that the company will receive the grant, the before tax cashflows for the project have the following probability distribution: Probability Annual Annual Annual Capital Investment Useful Life Revenue Expenses O&M 0.15 $500,000 $200,000 $60,000 $640,000 4 years 0.35 $ 700,000 $250,000 $75,000 $720,000 6 years 0.35 $900,000 $350,000 $105,000 $990,000 8 years 0.15 $1,100,000 $400,000 $120,000 $1,100,000 10 years (a) Determine the expected value of the project's revenues, expenses, O&M costs, capital investment and useful life (1 mark) (b) The company uses the 200% declining balance method of depreciation, with switchover to straight line depreciation. The company will sell the assets from the project for $60,000 at the end of the project's useful life. Using the expected values determined in part (a), determine the after tax cash flows over the life of the project (3 marks) (c) Determine the after tax present worth of the project (1 mark)
