FIN4801 Assignment 4 2025 (Exceptionally Crafted) DUE 8 August 2025

FIN4801
Assignment 4

DUE 8 August 2025

, Drone Manufacturing Investment Mapex Ltd. Project Evaluation


Mapex Ltd.: Drone Manufacturing Project
Evaluation

(a) Adjust Cash Flows for Inflation and Identify
Relevant Cash Flows (12 marks)
Initial Investment (Year 0)
• Machinery Cost: R800,000

• Installation Cost: R200,000

• Total Initial Outlay:

R800,000 + R200,000 = R1,000,000 (real terms, no inflation adjustment)


Operating Cash Flows (Years 1–4)
Cash flows are provided in real terms and are converted to nominal terms using the
formula:

Nominal Value = Real Value × (1 + Inflation)t , Inflation = 4%

Sales Revenue (Nominal Terms)


Year Calculation Nominal Sales (R)

1 1,500,000 × (1.04)1 1,560,000
2 1,500,000 × (1.04)2 1,622,400
3 1,500,000 × (1.04)3 1,687,296
4 1,500,000 × (1.04)4 1,754,788


Variable Costs (60% of Sales)


Year Calculation Variable Costs (R)

1 60% of 1,560,000 936,000
2 60% of 1,622,400 973,440
3 60% of 1,687,296 1,012,378
4 60% of 1,754,788 1,052,873


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