Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 8 Following the arrival of corona virus your firm needs to invest in updating its software and website. The new investments, expenses and payoffs,

Question 8 Following the arrival of corona virus your firm needs to invest in updating its software and website. The new investments, expenses and payoffs, along with other financials, can be seen in the table below. For your calculations assume that the WACC is 15%, and the tax rate is 25%. All of the values in the table are measured in pounds Sterling.

image text in transcribed

a. Calculate the incremental FCF for the upgrade. b. You forgot to consider depreciation for the new software, which according to HMRC must be calculated linearly with a useful life of 2 years and no salvage value, assuming that investments are made at the end of the year. Calculate the new incremental FCF. c. Calculate the NPV. d. Following encouraging news from your clients you believe that by making an extra investment of 50,000 in 2020 you can carry on forever beyond 2024, assuming that all the incremental free cash flow remains as in 2024. What is the new NPV? e. From your solution to the exercise, what could be a way in which the government encourages firms to invest following the recent crisis? Give three (3) possibilities. [Write no more than 5 lines.]

Year 2020 2021 2022 2023 2024 Software upgrades 50,000 55,000 60,500 66,550 73,205 Rent existing office 570,000 598,500 628,425 659,846 692,839 Extra IT salaries 60,000 66,000 72,600 79,860 87,846 Office maintenance 15,000 15,000 15,000 15,000 15,000 CEO salary 50,000 52,500 55, 125 57,881 60,775 Increased revenues 155,000 170,500 187,550 206,305 226,936

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Performance Auditing Of Public Sector Property Contracts

Authors: Lori Keating

1st Edition

0566089998, 978-0566089992

More Books

Students also viewed these Accounting questions