[SOLVED] Computer Tuition Ltd (CT) specialises in providing

Computer Tuition Ltd (CT) specialises in providing courses for computer users, often tailoring its courses to meet the specific needs of particular clients. CT’s primary financial objective is to maximise the wealth of its shareholders. CT has been asked by the Small Business Skills Agency (SBSA), a UK government sponsored organisation, to run a series of two-day computer users’ induction courses, in various parts of the UK, over a three-year period starting in January 20X4. The courses are part of the implementation of SBSA’s policy of actively encouraging the use of computers in small businesses. SBSA will make suitable premises available to CT, rent free, at various locations, during the three years. It has also undertaken to publicise the courses in a newsletter that it publishes for small businesses. SBSA insists that CT must charge £50 per place on a two-day course. CT has commissioned a market survey to assess the likely demand. The market research survey cost £5,000. This has yet to be paid by CT. The survey reveals that, without advertising, other than in the SBSA newsletter, there is a 0.6 probability of selling 12,000 places, a 0.2 probability of selling 14,000 and a 0.2 probability of selling 16,000 during 20X4. Left unadvertised, the demand for places in 20X5 and 20X6 is expected to remain at the same level as actually occurs in 20X4. The market researchers point out that, should the lowest level of demand occur in 20X4, it would almost certainly be as a result of the publicity in the newsletter being overlooked by businesses. The market researchers are very confident that a direct mailing, to all businesses that might buy places on courses, would raise demand from 12,000 to 14,000 places per year for the remainder of the three years. The market researchers believe that, at either the 14,000 or the 16,000 level of demand, there would be no prospect of improving demand by any means. A direct mailing would cost £140,000. It is only feasible to undertake a direct mailing in late December. One could be undertaken in December 20X3. Alternatively, one could be made in December 20X4. Instructors will be recruited for the duration of the project and paid a total of £350,000 per annum. They will be responsible for managing the project locally. CT will pay their travelling and subsistence expenses, estimated at a total of £100,000 per year for each of the three years. The project would require CT to provide personal computers to be used by participants on the courses. CT has suitable hardware available from another project which is coming to an end in December 20X3. The computers were bought in May 20X2 for £400,000. If they are not used in this project, they will be sold on 31 December 20X3 for an estimated £250,000, receivable on that date. It is estimated that at the end of the SBSA project the computers would be disposed of for a zero net realizable value, probably by donating them to a school. It is estimated that the variable costs, for documentation and disks, will amount to an estimated £5 per place sold. CT’s finance cost is estimated at 12 per cent per year. There are not thought to be any incremental costs associated with the project, other than those to which reference has already been made. It is estimated that the working capital associated with the SBSA project will be negligible

Required:
(a) State, with supporting workings, when, if at all, the direct mailing should be undertaken.
(b) Provide a schedule of expected cash flows relevant to the project and use this to recommend, with supporting calculations, whether or not CT should undertake the project.

Question: Computer Tuition Ltd (CT) specialises in providing