UEM Construction Sdn Bhd is considering investing in a new construction equipment costing RM150,000. Its life is expected to be four years and it will have no scrap value at the end of this period. The following details are given relating to the machinery’s activities: Unit selling price is RM40.00 and unit variable costs of production are: RMDirect materials6.00Direct labour3.80Variable overheads5.20 Sales volume relating to production of the construction equipment is expected to be: YearSales Volume (units)12,10022,20032,50042,600 - Fixed costs amount to RM12,000 per annum. One quarter of the fixed costs is cash flow related items.- The company anticipates a cost of capital to be 10%.Question :a) Explain the Net Present Value relating to investment of funds in long term investments.b) Based on your answer in (a) above, should the project be accepted? Explain your decision. c) “IRR technique cannot be used by UEM Engineering to assess potential investment projects” Discuss the above statement.

Net present value is the difference between the present value of cash flow and initial investment.…

M Construction Sdn Bhd is considering investing in a new construction equipment costing RM150,000. Its life is expected to be four years and it will have no scrap value at the end of this period. The following details are given relating to the machinery’s activities: Unit selling price is RM40.00 and unit variable costs of production are:

M Construction Sdn Bhd is considering investing in a new construction equipment costing RM150,000. Its life is expected to be four years and it will have no scrap value at the end of this period. The following details are given relating to the machinery’s activities: Unit selling price is RM40.00 and unit variable costs of production are:

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 4P

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