Contribution – Knowsia

BCL – L1 – SA – Q76 – Contract Law

Rights of a joint promisor who pays the full amount.

Question

A, B and C jointly promised to pay GH $60000 to D. A was compelled by D to pay the entire amount of GH $.60000$. Here

A A can file a suit against D for recovery of the amount exceeding his share

B A is entitled to recover Rs. 20000 each from B and C

C On payment by A, the contract is discharged, and B and C are also not liable to A

D D is not justified here and is liable to refund the entire amount to A

Answer

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Tags: Contract Law, Contribution, Discharge, Joint Promise
Level: Level 1

Topic: Contract Law

FM – L2 – Q78 – Discounted cash flow

Calculate NPV for Woodland Enterprises' new product investment with inflation and advise on project viability.

Question

Woodland Enterprises plans to invest GH₵7 million in a new product. Net contribution over the next five years is expected to be GH₵4.2 million per annum in real terms. Marketing expenditure of GH₵1.4m per annum will also be needed. Expenditure of GH₵1.3m per annum will be required to replace existing assets which will now be used on the project but are getting to the end of their useful lives. This expenditure will be incurred at the beginning of each year. Additional investment in working capital equivalent to 10% of contribution will need to be in place at the start of each year. Working capital will be released at the end of the project. The following forecasts are made of the rates of inflation each year for the next five years:

Contribution	Marketing	Assets	General prices
8%	3%	4%	4.70%

The real cost of capital of the company is 6%. All cash flows are in real terms. Ignore tax.

Required:
Calculate the net present value of the project and appraise whether it is a worthwhile project.

Answer

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Tags: Capital Investment, Contribution, Cost of Capital, Discounted cash flow, Inflation, NPV, Working Capital
Level: Level 2

Topic: Discounted cash flow

FM – L2 – Q62 – Discounted cash flow

Calculate contribution PV for two strategies and evaluate machine investment using IRR for Volta Fabrication Ltd.

Question

DOME FABRICATION LIMITED
(a) Contribution
Strategy 1

Year	1	2	3	4	5
Demand (units)	10,000	12,000	15,000	18,000	20,000
Selling price (unit)	GH¢25	GH¢25	GH¢25	GH¢25	GH¢25
Variable cost (unit)	GH¢15	GH¢15	GH¢15	GH¢15	GH¢15
Contribution (unit)
Inflated contribution
Total contribution (GH¢)

10% discount factors
PV of contribution (GH¢)

Total PV of Strategy 1 contributions =

Strategy 2

Year	1	2	3	4	5
Demand (units)	12,000	14,000daf	16,000	18,000	20,000
Selling price (unit)	GH¢22	GH¢22	GH¢22	GH¢22	GH¢22
Variable cost (unit)	GH¢12	GH¢12	GH¢12	GH¢12	GH¢12
Contribution (unit)
Inflated contribution
Total contribution
Total contribution
PV of contribution (GH¢)

Total PV of strategy 2 contributions =

Strategy 2 is preferred as it has the higher present value of contributions.

(b) Evaluating the investment in the new machine using internal rate of return

Year	1	2	3	4	5
Total contribution
Fixed costs
Profit
10% discount factors
Present value
20% discount factors
Present value of profits

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flows, Contribution, Cost of Capital, Discounted cash flow, Financial analysis, Inflation, investment appraisal, IRR, NPV
Level: Level 2

Topic: Discounted cash flow

Tag (SQ): Contribution

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BCL – L1 – SA – Q76 – Contract Law

Rights of a joint promisor who pays the full amount.

FM – L2 – Q78 – Discounted cash flow

Calculate NPV for Woodland Enterprises' new product investment with inflation and advise on project viability.

FM – L2 – Q62 – Discounted cash flow

Calculate contribution PV for two strategies and evaluate machine investment using IRR for Volta Fabrication Ltd.

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BCL – L1 – SA – Q76 – Contract Law

Rights of a joint promisor who pays the full amount.

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FM – L2 – Q78 – Discounted cash flow

Calculate NPV for Woodland Enterprises' new product investment with inflation and advise on project viability.

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FM – L2 – Q62 – Discounted cash flow

Calculate contribution PV for two strategies and evaluate machine investment using IRR for Volta Fabrication Ltd.

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