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SCS – L3 – Q15 – Environment analysis

Analyze the general environment of Beta Pure Water Ltd using PESTEL framework.

Question

(a)Assess the general environment in which Beta Pure Water Ltd operates

(b) Analyse the nature of competition faced by Beta Pure Water Ltd. (c) Advise management on the best option between lease or buy. Support your advice with relevant calculations. (d)Explain TWO other factors you will consider in reaching your conclusion in (c) above.

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Tags: Beta Pure Water, Capital Investment, Depreciation, Investment decisions, Lease vs Buy, NPV, Tax Savings
Level: Level 3

Topic: Investment decisions

FM – L2 – Q57 – DCF: Taxation and Inflation

Calculate the NPV of a project for CVB Ltd, considering tax, capital allowances, and cash flows over five years with a 15% cost of capital.

Question

CVB Ltd is considering whether to invest in new equipment costing GH¢600,000. The equipment is expected to have an economic life of five years and will have no disposal value at the end of Year 5 (and no disposal costs).
CVB’s after-tax cost of capital is 15%. Tax is charged at an annual rate of 35% and is payable in the year following the year in which the taxable profits arise.
The following forecasts relate to the project under consideration:

Year	GH¢000
	1	2	3	4	5
Sales income	250	250	300	350	400
Direct materials	50	55	58	64	70
Direct labour	25	25	30	30	35
Total direct costs	75	75	88	94	105
Depreciation	120	120	120	120	120

There will be tax allowances on the cost of the equipment, calculated at 25% each year on the reducing balance basis. The first depreciation tax allowance (capital allowance) would be claimed in year 0 (or very early in year 1).
Assume that:
(1) taxable profits are defined as income minus direct costs and capital allowances
(2) cash profits in each year = sales minus direct costs
Required
Calculate the net present value of the project and recommend whether or not the project should be undertaken.

Answer

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Tags: capital allowances, Cash Flows, Cost of Capital, Discounted cash flow, Financial analysis, investment appraisal, NPV, project evaluation, Tax Savings, Taxation
Level: Level 2

Topic: DCF: Taxation and Inflation

Tag (SQ): Tax Savings

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SCS – L3 – Q15 – Environment analysis

Analyze the general environment of Beta Pure Water Ltd using PESTEL framework.

FM – L2 – Q57 – DCF: Taxation and Inflation

Calculate the NPV of a project for CVB Ltd, considering tax, capital allowances, and cash flows over five years with a 15% cost of capital.

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Tag (SQ): Tax Savings

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SCS – L3 – Q15 – Environment analysis

Analyze the general environment of Beta Pure Water Ltd using PESTEL framework.

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FM – L2 – Q57 – DCF: Taxation and Inflation

Calculate the NPV of a project for CVB Ltd, considering tax, capital allowances, and cash flows over five years with a 15% cost of capital.

You're reporting an error for "FM – L2 – Q57 – DCF: Taxation and Inflation"

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