Business, 08.07.2021 22:10 apolloplays10

Xentia Technologies Group (XTG) is considering investing in developing new 4D television technology. The CEO of XTG, Ms Jane Smith, has appointed you to evaluate the proposal for the board. If the new project goes ahead it is expected that it be operational at the beginning of year 2 (with the first revenues generated by the end of that year). Once the new project is operational it will render the company's existing 2D technology project obsolete. The new project is then expected to have an operating life of six years. To assist you in evaluating the project the following information has been prepared: Existing 2D technology project: Constant annual earnings before depreciation and taxes (EBDIT) $400,000
Annual depreciation expense on equipment $0
(Equipment fully depreciated)
Annual working capital balance $200,000
Expected salvage value of equipment if rendered obsolete $0
New 4D technology project:
New equipment outlays (immediate) $10,000,000
Expected constant EBDIT (In the first year of operation) $3,800,000
Annual depreciation rate on equipment (straight line) 10% p. a.
Expected salvage value of equipment at the end of the project $3,500,000
Working capital requirement (once project is operational) $300,000
Additional Information:
1. Company tax rate is 30%
2. Xentia is financed with $25 million in market value of debt and $50 million in market value of equity.
3. Xentia has a beta of 1.6.
4. Revolutionary Technology Corporation (RTC) is currently using technology that is similar in risk profile to the new 4D project.
5. RTC is financed with $40 million in market value of debt and $40 million in market value of equity.
6. RTC has a beta of 1.75
7. Xentia borrows debt capital at a cost of 8% p. a. compounded semi-annually
8. The long term market risk premium (including franking credits) is 9.75% p. a.
9. The current yield on Commonwealth Bonds is 4.25% p. a.
10. Xentia operates in an imputation tax system.
Required:
What is the appropriate discount rate that should be used to evaluate the project? Explain your decision.
Calculate the NPV of the project. Present the cashflows used in the NPV calculation in a table.

Answers: 1

Show answers

Another question on Business

Business, 22.06.2019 01:30

Eliminating entries (including goodwill impairment) and worksheets for various years on january 1, 2013, porter company purchased an 80% interest in the capital stock of salem company for$850,000. at that time, salem company had capital stock of $550,000 and retained earnings of $80,000.differences between the fair value and the book value of the identifiable assets of salem company were asfollows: fair value in excess of book valueequipment$130,000land65,000inventory40,000the book values of all other assets and liabilities of salem company were equal to their fair values onjanuary 1, 2013. the equipment had a remaining life of five years on january 1, 2013. the inventory was sold in2013.salem companyâ€™s net income and dividends declared in 2013 and 2014 were as follows: year 2013 net income of $100,000; dividends declared of $25,000year 2014 net income of $110,000; dividends declared of $35,000required: a.prepare a computation and allocation schedule for the difference between book value of equity acquired andthe value implied by the purchase price.b.present the eliminating/adjusting entries needed on the consolidated worksheet for the year endeddecember 31, 2013. (it is not necessary to prepare the worksheet.)lo6lo1

Answers: 1

Answer

Business, 22.06.2019 02:50

Seattle bank’s start-up division establishes new branch banks. each branch opens with three tellers. total teller cost per branch is $96,000 per year. the three tellers combined can process up to 90,000 customer transactions per year. if a branch does not attain a volume of at least 60,000 transactions during its first year of operations, it is closed. if the demand for services exceeds 90,000 transactions, an additional teller is hired and the branch is transferred from the start-up division to regular operations. required what is the relevant range of activity for new branch banks

Answers: 2

Answer

Business, 22.06.2019 19:00

Gus needs to purée his soup while it's still in the pot. what is the best tool for him to use? a. potato masher b. immersion blender c. rotary mixer d. whisk

Answers: 2

Answer

Business, 22.06.2019 23:00

Even sole proprietors should have at least how many computers? 1 2 3 4

Answers: 1

Answer

You know the right answer?

Xentia Technologies Group (XTG) is considering investing in developing new 4D television technology....

Questions