FIN4801_Assignment_4_COMPLETE_ANSWERS_&_SOLUTIONS–_Due_8_August 2025

FIN4801
Assignment 4
Unique No:
Due 8 August 2025

,Assignment 4 – Question 1: Mapex Ltd. Drone Project

PART 1: Identify and Adjust the Relevant Cash Flows
Total Marks: 12

1. Initial Investment (Year 0)

The initial investment includes all upfront expenditures needed to launch the drone
project. These are capital expenditures that occur at the start of the project:

 Cost of machinery: R800,000
 Installation cost: R200,000

Total Initial Outlay:

Initial Investment=R800,000+R200,000=R1,000,000\text{Initial Investment} = R800,000
+ R200,000 = \boxed{R1,000,000}Initial Investment=R800,000+R200,000=R1,000,000


💸 This is a one-time cash outflow at time zero (Year 0).


2. Annual Operating Cash Flows (Years 1–4)

The revenue and costs for each year are initially given in real terms and will be later
converted to nominal terms by adjusting for inflation. Here's the breakdown:

Real Revenue and Costs per Year:

 Sales Revenue (Real): R1,500,000
 Variable Costs (60% of revenue):

0.60×R1,500,000=R900,0000.60 \times R1,500,000 =
R900,0000.60×R1,500,000=R900,000

 Fixed Costs: R200,000

,  Depreciation (Straight-line over 4 years):

R1,000,0004=R250,000 per year\frac{R1,000,000}{4} = R250,000 \text{ per
year}4R1,000,000=R250,000 per year




EBIT (Earnings Before Interest and Tax):

EBIT=Revenue−Variable Costs−Fixed Costs−Depreciation\text{EBIT} = \text{Revenue}
- \text{Variable Costs} - \text{Fixed Costs} -
\text{Depreciation}EBIT=Revenue−Variable Costs−Fixed Costs−Depreciation
=R1,500,000−R900,000−R200,000−R250,000=R150,000= R1,500,000 - R900,000 -
R200,000 - R250,000 =
\boxed{R150,000}=R1,500,000−R900,000−R200,000−R250,000=R150,000



Tax (27% of EBIT):

Tax=0.27×R150,000=R40,500\text{Tax} = 0.27 \times R150,000 =
\boxed{R40,500}Tax=0.27×R150,000=R40,500



Net Operating Profit After Tax (NOPAT):

NOPAT=R150,000−R40,500=R109,500\text{NOPAT} = R150,000 - R40,500 =
\boxed{R109,500}NOPAT=R150,000−R40,500=R109,500



Add Back Depreciation (Non-Cash Item):

Operating Cash Flow (Real)=R109,500+R250,000=R359,500\text{Operating Cash Flow
(Real)} = R109,500 + R250,000 =
\boxed{R359,500}Operating Cash Flow (Real)=R109,500+R250,000=R359,500