56 JKL LTD JKL Ltd is considering whether to invest in the purchase of a...
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56 JKL LTD JKL Ltd is considering whether to invest in the purchase of a new machine costing GHe 250,000. The machine will have a four-year life and a net disposal value of GHe 100,000 at the end of Year 4 In addition, GHe38,000 of working capital will be required from the start of the working capital will be recovered at the end of Year 4. project increasing to GH50,000 nt the beginning of the second year. All the The project is expected to generate extra annual revenues of GH200,000 and Corporation tax is charged on profits at 36%. Tax is payable in the year following allowance on capital expenditure, for tax purposes. The tax-allowable the year in which the profits occur. There will be a 25% annual writing down depreciation is calculated by the reducing balance method. Required JKL's cost of capital is 10% after tax Calculate the NPV of the project and state whether or not it should be undertaken. (12 marks)
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