FIN4801 Assignment 4
(COMPLETE ANSWERS)
2025 - DUE 8 August
2025
FOR MORE ASSISTANCE CONTACT:
100% TRUSTED WORKINGS, EXPLANATIONS & SOLUTIONS
, FIN4801 Assignment 4 (COMPLETE
ANSWERS) 2025 - DUE 8 August 2025
Mapex Ltd., a geoinformatics company is expanding into
drone manufacturing to diversify its operations. This
project has an initial life of 4 years and the initial costs of
the machinery (which is the only significant initial cost) is
R800 000 while the related installation costs is R200 000.
The projects are expected to generate sales of R1 500
000 each year (expressed in real terms). Variable costs
are expected to amount to 60% of sales while fixed costs
are expected to be R200 000 (in real terms). The
machinery for the project can be depreciated over 4
years and the tax rate is 27%. The machinery can be sold
for R1 200 000 at the end of the project (in nominal
terms). The company is wholly financed by equity. The
risk-free rate is 10% and the market risk premium is 5%.
The company currently has a beta of 1.5 while that of the
drone industry is 1.5. Inflation is 4%. Required: Adjust the
cash flows for inflation where necessary and identify the
relevant cash flows of the project (12) Determine the
most appropriate discount rate to use for the project (3)
Discuss the acceptability of the project, mention how you
adjusted for inflation and risk and what impact this had
on the resultant NPV. (5) Miles Ltd., a manufacturer of
various car products wants to estimate its funding
requirements for the coming financial year. In the recent
past, the company had spare production capacity, but
increased sales has raised suspicions amongst
management that investment in new capacity may be
required soon. In the current financial year the company
(COMPLETE ANSWERS)
2025 - DUE 8 August
2025
FOR MORE ASSISTANCE CONTACT:
100% TRUSTED WORKINGS, EXPLANATIONS & SOLUTIONS
, FIN4801 Assignment 4 (COMPLETE
ANSWERS) 2025 - DUE 8 August 2025
Mapex Ltd., a geoinformatics company is expanding into
drone manufacturing to diversify its operations. This
project has an initial life of 4 years and the initial costs of
the machinery (which is the only significant initial cost) is
R800 000 while the related installation costs is R200 000.
The projects are expected to generate sales of R1 500
000 each year (expressed in real terms). Variable costs
are expected to amount to 60% of sales while fixed costs
are expected to be R200 000 (in real terms). The
machinery for the project can be depreciated over 4
years and the tax rate is 27%. The machinery can be sold
for R1 200 000 at the end of the project (in nominal
terms). The company is wholly financed by equity. The
risk-free rate is 10% and the market risk premium is 5%.
The company currently has a beta of 1.5 while that of the
drone industry is 1.5. Inflation is 4%. Required: Adjust the
cash flows for inflation where necessary and identify the
relevant cash flows of the project (12) Determine the
most appropriate discount rate to use for the project (3)
Discuss the acceptability of the project, mention how you
adjusted for inflation and risk and what impact this had
on the resultant NPV. (5) Miles Ltd., a manufacturer of
various car products wants to estimate its funding
requirements for the coming financial year. In the recent
past, the company had spare production capacity, but
increased sales has raised suspicions amongst
management that investment in new capacity may be
required soon. In the current financial year the company
