RMIT Management Accounting and Business Week 11 Group Assessment 7.5% QUESTION ONE Discuss the concept of Cast of Capital (COC) and how does it relate to teternal Rate of Retsrn RR) (6 marks) QUESTION TWO company is considering ievesting in a restaurant expamion: the plan is to open four new across the country. The cost of this investment s s5 200 000. it is to be depreciated A fast foed is (straight-ine hesis) over a period of 10 years with no residual value. The discount rate is 8 per cent The company tax rate is 3 presented in the follewing table 0% The other relevant cash nw information relating toths prieit Net Cash Inflow Present Value of 894,400 950,s00 1,554,000 5975,000 $1599,400 52.999 400 51,005 400 52,799,40o $2,399 400 $799400 Vallue of $1 Annulty of 5 0 857 735 0.681 0.630 0.583 0.540 312 3991 4.623 6.247 6710 than building the new stores, the management team have a However, the management is concerned about the risliness of this business and that not offshore. all factors have been included in the calculation. There is difficulty in capturing some qualitative non-inancial factors and estimating other longer-term cash flows Required (a) Calculate the NPV (b) Should they proceed with the project? (c) What would you advise on preparing for the offshore decision? Discussion should incluade reference to the financial and mon-financial factors that may influence this decision and suggestions to improve the decision model. (16 44-24) Week 11 MAB Version-3