Question
In: Accounting
1. A company has a diversified film services and it is currently investing in a hollywood...
1. A company has a diversified film services and it is currently investing in a hollywood series film. It's desired required return in 8% and the hurdle rate is 20%. The company has already spent $23823 on the hollywood film, and needs to spend $2379 on the makeup and clothing costs for all movies, including this one. Working capital for this movie is $8814. The cost of the producing this movie is $4832811.The movie generates a cash flow of $71992 in the first year and grows at 3.1% annually for 5 years. Calculate the NPV for the project.
2. Tesco Company is purchasing new equipments for $1 million that has a CCA rate of 20%. The equipment can reduce working capital immediately by $7237 (once only) and can be sold for $2838 in 12 years. When the project is over, there will still be asserts in the CCA class. The new equipment can save up to $57888 before taxes per year. The discount rate is 6% and the tax rate is 21%. Remember that CCA expense has the half-year rule. Calculate the NPV.
Solutions
Expert Solution
| Required Rate of return | 8% | ||||
| Cash Outflows | |||||
| Already spent | 23823 | ||||
| Makeup cost | 2379 | ||||
| Working capital | 8814 | ||||
| Cost of the project | 48328 | ||||
| Total cash outflow | 83344 | ||||
| Year1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Cash Inflow | 71992 | 74223.75 | 76524.69 | 78896.95 | 81342.76 |
| Pvf | 0.925926 | 0.857339 | 0.793832 | 0.73503 | 0.680583 |
| Present Value | 66659.26 | 63634.9 | 60747.76 | 57991.62 | 55360.52 |
| Total cash Inflow | 304394.1 | ||||
| NPV | 221050.1 |
2.
| Cost of new Equipment | 10,00,000 | ||||||||||||
| CCA Rate | 20% | ||||||||||||
| 1 | Computaion of CCA | Year0 | Year 1 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| 2 | WDV | 1000000 | 800000 | 640000 | 512000 | 409600 | 327680 | 262144 | 209715.2 | 167772.2 | 134217.7 | 107374.2 | 85899.35 |
| 3 | Rate | 20% | 20% | 20% | 20% | 20% | 20% | 20% | 20% | 20% | 20% | 20% | 20% |
| 4 | CCA | 200000 | 160000 | 128000 | 102400 | 81920 | 65536 | 52428.8 | 41943.04 | 33554.43 | 26843.55 | 21474.84 | 17179.87 |
| 5 | Tax Savings | 42000 | 33600 | 26880 | 21504 | 17203.2 | 13762.56 | 11010.05 | 8808.038 | 7046.431 | 5637.145 | 4509.716 | 3607.773 |
| 6 | Savings on Working capital | 7237 | - | - | - | - | - | - | - | - | - | - | - |
| 7 | Asset sold for in 12 yrs | - | - | - | - | - | - | - | - | - | - | - | 2838 |
| 8 | Saving using new equipment | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 | 57888 |
| 9 | Net savings after taxes | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 | 45731.52 |
| Total savings | 94968.52 | 79331.52 | 72611.52 | 67235.52 | 62934.72 | 59494.08 | 56741.57 | 54539.56 | 52777.95 | 51368.66 | 50241.24 | 52177.29 | |
| PVF | 0.943396 | 0.889996 | 0.839619 | 0.792094 | 0.747258 | 0.704961 | 0.665057 | 0.627412 | 0.591898 | 0.558395 | 0.526788 | 0.496969 | |
| Present value | 89592.94 | 70604.77 | 60966.03 | 53256.83 | 47028.48 | 41940.98 | 37736.38 | 34218.79 | 31239.19 | 28683.99 | 26466.46 | 25930.52 | |
| Total present value | 547665.4 | ||||||||||||
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