Annual Depreciation Expenses Fleet of Executive Coache

Added on 2020-04-07

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Annual Depreciation Expenses Fleet of Executive Coache_1

FINANCEQuestion 1Annual Depreciation ExpensesFleet of executive coaches = (250-70)/5 = £ 36 millionLogical operational premises = (10/100)*20 = £ 2 millionEvent requirement = (5/5) = £ 1 millionHence, total annual depreciation expense = 36 + 2 + 1= £ 39 millionAlso , total investment = 250 + 20 + 5 = £ 275 million1)Net cash inflow every year is computed below.Average annual profit = (61+56+11+21-14)/5 = £ 27millionTotal initial investment = £ 275 millionHence, accounting rate of return = (27/275)*100 = 9.82% p.a.2)The project cash flows are indicated below.Initial investment = £ 275 millionCash inflows during the first three years = 88.41 + 84.36 + 47.91 = £ 220.68 million

Annual Depreciation Expenses Fleet of Executive Coache_2

FINANCEAmount of fourth year required to recover investment = (275-220.68)/56.01 = 0.97Hence, payback period = 3+ 0.97 = 3.97 years3)The NPV can be computed in the manner indicated below using 12% as the cost of capital.NPV for the project comes out as = £ 3.70 million4) The IRR computation is shown below.The discount rate for zero NPV is IRR which comes out as 11.44% pa.

Annual Depreciation Expenses Fleet of Executive Coache_3

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