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
[12 Marks]
1. Initial Investment (Year 0)
The total upfront cost incurred at the beginning of the project includes the purchase of
machinery and installation costs:
Machinery cost: R800,000
Installation cost: R200,000
Total Initial Outlay (Year 0):
= R800,000 + R200,000
= R1,000,000 (This is a one-time cash outflow at time zero.)
2. Annual Operating Cash Flows (Years 1–4)
The project’s revenues and operating costs are expressed in real terms. These will be
adjusted to nominal terms later, using the inflation rate of 4% per annum.
Revenue and Costs (Real Terms):
Sales Revenue: R1,500,000 per year
Variable Costs: 60% of sales = 0.60 × R1,500,000 = R900,000
Fixed Costs: R200,000 per year
Depreciation (Straight-line):
= R1,000, = R250,000 per year
Real EBIT Calculation:
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
[12 Marks]
1. Initial Investment (Year 0)
The total upfront cost incurred at the beginning of the project includes the purchase of
machinery and installation costs:
Machinery cost: R800,000
Installation cost: R200,000
Total Initial Outlay (Year 0):
= R800,000 + R200,000
= R1,000,000 (This is a one-time cash outflow at time zero.)
2. Annual Operating Cash Flows (Years 1–4)
The project’s revenues and operating costs are expressed in real terms. These will be
adjusted to nominal terms later, using the inflation rate of 4% per annum.
Revenue and Costs (Real Terms):
Sales Revenue: R1,500,000 per year
Variable Costs: 60% of sales = 0.60 × R1,500,000 = R900,000
Fixed Costs: R200,000 per year
Depreciation (Straight-line):
= R1,000, = R250,000 per year
Real EBIT Calculation:
