Question 3 Khaled Comms is considering several options for its investment strategy as...
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Accounting
Question 3
Khaled Comms is considering several options for its investment strategy as it expands 5G mobile phone network infrastructure.
You have the following estimations of the revenues and expenditure.
Initial Investment AED 12,000,000
Sales AED 8,000,000 pa
Direct Costs AED 2,800,000pa
Administration AED 900,000pa
Jumeriah Comms has a cost of capital of 10%. Ignore taxation
Jumeriah Comms believes the machinery will have a six-year life before the next generation upgrade.
- Calculate the:
- Expected payback period (3 marks)
- Accounting Rate of Return (6 marks)
- Net Present Value (6 marks)
- Internal Rate of Return (5 marks)
- Explain and evaluate which method calculated above is most reliable, which would a firm calculate in practice?
What are the challenges of conducting investment appraisal analysis? (10 marks)
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