sources of funding
14:13 • Safari
.11 4G
Information on the new ferry
Ferries are normally operated profitably for five years after which they are decommissioned. They are then sold for approximately 10 percent of its cost. The estimated data on the proposed new ferry are as follows:
Discount factor £000 Cost of ferry 1.000 (150,000) Cash inflows for five years: Year 1 0.971 55,230 Year 2 0.943 70,045 Year 3 0.915 88,375 Year 4 0.888 79,870 Year 5 0.863 57,555 Sale of decommissioned ferry in year 5 0.863 45,000
The company’s borrowing rate, which is the same as its cost of capital, is three percent. The discount factors for the cost of capital is provided in the above data for the relevant years.
What you must do
Write a report of one thousand words on behalf of the Director of Finance for presentation to the Board of Directors which most cover the following:
1. Short term and long term sources of finance to fund the acquisition of the ferry and for the company’s working capital needs, and 2. An Assessment of various investment appraisal techniques and recommending the viability of the acquisition and operation of the new ferry based on one suitable investment appraisal technique using the data above.
Your report must be appropriately structured. The following is suggested as a guide of how a good report should be:
• An introductory section with brief description of 4yjj, Company and what the report is about. • The main section (body) of the report, which may be subdivided on the basis of the two themes listed. • A concluding section that briefly gmArsjm your work.
Notes to students
1. Students should make correct use of the Harvard referencing method. 2. Electronic copy of assignment must be submitted on Blackboard through Turnitin 3. Marks may be awarded for satisfactory use of language 4. This is an individual piece of work required to meet
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14:13 • Safari sources of funding
4G,.11
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financial sources for the company’s expansion goals
The new ferry’s information
Ferries are usually profitable for only five years before being retired. They are then sold for about 10% of their original cost. The following are the estimated data for the proposed new ferry:
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£000 discount factor The cost of the ferry is $1,000. (150,000) Inflows of cash during the next five years: 0.971 55,230 0.943 70,045 0.971 55,230 0.971 55,230 0.971 55,230 0.971 55,230 0.971 55 Year 3: 0.915: 88,375; Year 4: 0.888: 79,870; Year 5: 0.863: 57,555; Year 6: 0.888: 79,870; Year 7: 0.888: 79,870; Year In the fifth year, 0.863 45,000 euros were raised via the sale of a disused ferry.
The company’s borrowing rate is three percent, which is the same as its cost of capital. The cost of capital discount variables are mentioned in the
