Juhari Berhad plans to introduce a new innovative project at Johor Bahru. The cost of the project is RM800,000 and it will be depreciated over a five-year period on the straight-line basis to zero value. The company expects to sell 250 units per year at RM20,000 per unit. The variable cost per unit and fixed cost are RM16,000 and RM130,000 respectively. There is no salvage value at the end of the useful life. Your required rate of return on new project is 18 percent and tax rate is 35 percent. Calculate; ii) Calculate the sensitivity of the base case Net Present Value (NPV) to change in unit price to RM21,000.

Juhari Berhad plans to introduce a new innovative project at Johor Bahru. The cost of the project is RM800,000 and it will be depreciated over a five-year period on the straight-line basis to zero value. The company expects to sell 250 units per year at RM20,000 per unit. The variable cost per unit and fixed cost are RM16,000 and RM130,000 respectively. There is no salvage value at the end of the useful life. Your required rate of return on new project is 18 percent and tax rate is 35 percent. Calculate; ii) Calculate the sensitivity of the base case Net Present Value (NPV) to change in unit price to RM21,000.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 8P: The Rodriguez Company is considering an average-risk investment in a mineral water spring project...

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QUESTION 1 a) Juhari Berhad plans to introduce a new innovative project at Johor Bahru. The cost of the project is RM800,000 and it will be depreciated over a five-year period on the straight-line basis to zero value. The company expects to sell 250 units per year at RM20,000 per unit. The variable cost per unit and fixed cost are RM16,000 and RM130,000 respectively. There is no salvage value at the end of the useful life. Your required rate of return on new project is 18 percent and tax rate is 35 percent. Calculate; i) The accounting break-even and cash break-even level of output for this project.
Randall's Ales & Porters S.A., is considering expanding into Costa Rica. As an incentive, Costa Rica agrees not to charge the company any taxes. The project has the following estimated data: price = $94 per unit variable costs = $50.76 per unit fixed costs = $7,600 required return = 16 percent initial investment = $11,000 life = three years depreciable life = three years, straight-line. Required: (a)What is the accounting break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (b)What is the cash break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥ (c) What is the financial break-even quantity? (Do not round your intermediate calculations.) (Click to select) ♥
Kako Ltd is considering introducing a new product unto the market. This will require the injection of capital to the tune of GH¢20,000 for the purchase of the equipment for production. The cost of the building that Kako Ltd intends to use for the project is GH¢30,000. The Production and Marketing department has presented the information in the table below: 2019 Variable cost per unit of the product GH¢2 Selling price per unit GH¢6 Quantity 4000 units per annum Again the following information should be taken not of: • Feasibility studies cost the company GH¢2000 • Test marketing expenses amounts to GH¢3000 • Variable cost will increase by 5% per annum • Selling price will increase by 10% per annum • Marketing expense will be 5% of sales revenue per year • An initial working capital investment of GH¢2000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final…
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We are evaluating a project that costs RM604,000, has an 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 55,000 units per year. Price per unit is RM36, variable cost per unit is RM17, and fixed costs are RM685,000 per year. The tax rate is 21 percent and we require a return of 15 percent on this project. (i) Calculate the base-case cash flow and NPV., (ii) Assume the sales figure increases to 56,000 units per year, calculate the sensitivity of NPV to changes in the sales figure?
2. Fizz Limited is considering a 5 year project to improve its production efficiency. The required machine will cost BDT 6,00,000 that will result in annual pre-tax saving of BDT 2,55,000. The machine will be fully depreciated in straight line basis. It is expected that the machine will have a selvedge value of BDT 1,00,000 after the economic life. The project requires an initial investment of BDT 2,50,000 in working capital along with 40,000 in successive years. Annual applicable corporate tax rate for ABC Limited is 30% and capital gain tax rate is 20%. The project will arrange 30% debt and rest from equity. Cost of debt is 12% and the cost of equity is 13%. Evaluate the project using following criteria and explain your decisiona) Net Present Valueb) Internal rate of returnc) Payback periodd) Discounted Payback Periode) Profitability Index
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a.) Frank is looking for a new sausage system with an installed cost of K390, 000. This cost will be depreciation straight line to Zero over the project's life 5-year life, at the end of which the sausage system can be scraped for K60, 000. The system will save the firm K120, 000 per year in the pre-tax operating costs, and the system requires an initial investment in net working capital of K28, 000. If the tax rate is 34% and the discount rate is 10%, what is the NPV of this project? b.) "the difficulty with capital budgeting is not in deciding whether NPV, IRR or any other evaluation technique but in identifying suitable projects and estimating there cash flows." i.) Evaluate this statement. As part of your answer consider: ii.) why NPV AND IRR may be preferred to other techniques such as payback and accounting rate of return. iii.) why NPV is generally preferred to IRR, and how NPV may be interprated. c.) Consider that Leeds plc is financed by a combination of debt and…
The X Division of NUBD Products Co. is considering an investment in a new project. The project has an estimated cost of P1,000,000. If NUBD Products Co. has a target rate of return of 12%, how large does the return on investment on this project need to be to generate P180,000 of residual income?
It is estimated that an investment alternative with an initial investment cost of 250000 TL will generate annual revenues of 85000 TL and annual expenses of 20000 TL. It is expected to have a scrap value of 95000 TL at the end of its 7-year life. Find out how sensitive the investment decision of this investment alternative is to its revenues. (MARR: %10) Select one: a. 0.32294 b. 0.48225 c. 0.05634 d. 0.27838 e. 0.082902 f. 0.1719 g. 0.52003 h. 0.37235
be ignored. 13. Project NPV United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is S100,000, and thereafter the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.2 million. This could be depreciated for tax purposes over 10 years. However, Pigpen expects to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $400,000. Finally, the project requires an initial investment in working capital of S350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year I sales of hog feed are expected to be $4.2 million, and thereafter sales are forecasted to grow by 5% a year, slightly faster than the inflation rate.…
We are considering the introduction of new product. Currently we are in the 27% tax bracket with a 10% discount rate. The project is expected to last five years and then, it will be terminated. The following information describes the new project: Cost of new plant and equipment RM 8,900,000 Shipping and installation costs RM 400,000 Unit Sales: Year Units Sold 1 70,000 2 120,000 3 140,000 4 80,000 5 60,000 Sales price per unit: RM300/unit in Years 1-4 and RM260/unit in Year 5 Variable cost per unit: RM180/unit Annual fixed costs: RM300,000 per year Working capital requirements: There will be an initial working capital requirement of RM100,000 just to get production started. For each year, the total investment in net working capital will be equal to 10% of the dollar value of sales for that year. Thus, the investment in working capital will increase during Years 1 through 3, then…