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Question 4 [20] Please show calculations (no excel) The Tenova Company is evaluating the possibility of reopening of one of its mothballed loading docks. Repairs
Question 4 [20] Please show calculations (no excel) The Tenova Company is evaluating the possibility of reopening of one of its mothballed loading docks. Repairs and new equipment will cost R250,000, payable immediately. To operate the new dock will require additional dockside employees costing R70,000 per year. There will also be a need for additional administrative staff and other overheads such as extra stationery, insurance and telephone costs, amounting to R85,000 per year. Electricity and other energy used on the dock is anticipated to cost R40,000 per year. The Johannesburg head office will allocate R50,000 of its (unchanged) costs to this project. Other docks will experience a reduction in receipts of about R20,000 per year due to some degree of cannibalisation. Annual fees expected from the new dock are R255,000 per year. Assume that all cash flows arise at the respective year ends except the initial repair and equipment costs which are incurred at the outset. No sales are made on credit. Ignore tax and inflation in your calculations. Required: 4.1 Lay out the net annual cash flow calculations. Explain your reasoning. (10) 4.2 Assume an infinite life for the project and a cost of capital of 17%. What is the net present value?
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