FIN4801 Assignment 4 2025 (Comprehensive Answers) DUE 8 August 2025

FIN4801
Assignment 4

DUE 8 August 2025

, Mapex Ltd.: Drone Manufacturing Project
Evaluation

a. Adjust Cash Flows for Inflation and Identify Relevant Cash
Flows (12 marks)
Initial Investment (Year 0)
Machinery Cost: R800,000
Installation Cost: R200,000
Total Initial Outlay:
R800, 000 + R200, 000 = R1, 000, 000

(real terms, no inflation adjustment needed)
Operating Cash Flows (Years 1–4)
All operating figures are initially in real terms. To maintain consistency with the
nominal discount rate, we convert them into nominal terms using:

Nominal Value = Real Value × (1 + Inflation Rate)t

Inflation Rate = 4%.
1. Sales Revenue (Nominal Terms)

Year Calculation Nominal Sales (R)

1 1, 500, 000 × (1.04)1 1,560,000
2 1, 500, 000 × (1.04)2 1,622,400
3 1, 500, 000 × (1.04)3 1,687,296
4 1, 500, 000 × (1.04)4 1,754,788

2. Variable Costs (60% of Sales)

Year Calculation Variable Costs (R)

1 0.6 × 1, 560, 000 936,000
2 0.6 × 1, 622, 400 973,440
3 0.6 × 1, 687, 296 1,012,378
4 0.6 × 1, 754, 788 1,052,873




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