Case 5 – Case Study – American College A College is considering investing in its own transport fleet (School buses) Currently, the transportation has been contracted to an outside organization. The initial cost of the transport fleet would be AED 2,500 000 and also require AED 560,000 investment in working capital The life of the transport feet would be 8 years, after which time the vehicles would have to be scrapped with no salvage value, at the end of 8 years, using the Straight Line method.
The management has come up with the following Revenues and Cost data for the next 8 years. Sales to its customers will amount to AED 275,000 for the next four years and then increase to AED 340,000 for the last four years. To raise funds for the project your company is proposing to raise a long-term loan at 12% interest rate per annum. You are told that there is an attemative project that could be invested in using the funds which has the following projected results: • Payback period 6 years Net present value = AED 290,000 As funds are limited, investment can only be made in one project Decide which project you will choose and why?
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