TechXpert Ltd. operates with a 12% cost of capital. The company intends to make a capital investment of £7,500,000 in a machinery project that spans five years. This machinery will facilitate the production and sale of 350,000 units of Product Zephyr annually. The manufacturing cost for each unit is £11 (variable cost), while the wholesale selling price is set at £17 per unit. Required: a) Determine the net present value (NPV) of the given project b) Assess the sensitivity of the NPV to variations in the subsequent project parameters: (0) initial investment (ii) Sale (0) Cost (iv) Contribution Margin
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- 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…Wivenhoe Ltd wants to expand its market and is considering two mutually exclusive projects as follows: Project A: This project requires an initial investment of £178,000 with a four- year life span. Wivenhoe Ltd has already paid £20,000 to a market research company. Forecasted sales and operating expenses are shown in the table below: Year 1 Year 2 Year 3 Year 4 Sales revenue (£) 260,000 290,000 300,000 280,000 Material cost (£) 100,000 120,000 115,000 118,000 Labour cost (£) 60,000 72,000 52,000 66,000 Other fixed cost (not 10,000 10,000 18,000 18,000 including depreciation) Project B: This project requires an initial investment of £480,000 with a four- year life span. The forecasted annual accounting profit is £80,000 over four years. The following information applies to both projects: • Residual value at the end of the economic life of each project is nil, and straight line depreciation applies. • All sales are expected to be cash sales, and operation expenses are paid for in cash…Limitless Ltd. is planning to buy a new warehouse to store its production output. Theinvestment would require £500,000 to be paid upfront. Thanks to the new warehouse,the company expects to increase its profits by £120,000 annually for the next five years,and then £60,000 for the following five years. 1. Calculate the Net Present Value (NPV) of this investment opportunity if the cost ofcapital is 12%. 2. What is the payback period of this investment?
- NUBD Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV %3D factor. *Hasbro Plc, an airline navigation supplier, is in the process of buying a start-of-the art navigation software. The initial investment in the new software is £130,000. The annual cash flows are expected to be: Year 1 £38,000 ,Year 2 £43,000 ,Year 3 £50,000 Hasbro Plc employs a cost of capital of 6%. The rate of inflation is expected to be 3% for the duration of the project. Required: a) Calculate the ARR of the project, taking inflation into account. b) Calculate the (undiscounted) Payback Period of the project, taking inflation into account. c) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company.Hasbro Plc, an airline navigation supplier, is in the process of buying a start-of-the art navigation software. The initial investment in the new software is £130,000. The annual cash flows are expected to be: Year 1 £38,000 Year 2 £43,000 Year 3 £50,000 Hasbro Plc employs a cost of capital of 6%. The rate of inflation is expected to be 3% for the duration of the project. Required: a) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company. b) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places), and state clearly whether the project should be undertaken by the company. c) Discuss the likely impact of your outcomes in parts a) and b) above on Hasbro Plc.
- NUBD Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV factor. Round-off the final answer to 2 decimal places. Sample format: 11.11%Based on thesame background example (BACKGROUNDThe company ABC, L. C. manufactures someproducts with an average sales price of € 25/unit,with fixed annual costs of € 110,000. The averageunit variable costs are € 5) An investment requires an initial disbursement of € 2,500,000 and the duration of the project is 3 years, in the first of which it generates a cash flow of € 1,500,000, in the second € 3,700,000 and the third € 4,100,000. Calculate the Net Present Value of the investment, knowing that inflation is 3% cumulative annually and that the required profitability in the absence of inflation is 8%. Calculate the actual internal rate of return of the previous investment.Henning Ltd is involved in the manufacture of pharmaceutical products and is currently considering an investment in a new production facility. The proposal would involve an initial investment in capital assets of £1,500,000 and projected increased annual sales revenues as a result of the investment would be as follows: Year Sales 1 £2,500,000 2 £2,625,000 3 £2,700,000 4 £2,500,000 5 £2,250,000 Variable costs amount to 50% of sales value. Annual fixed overheads as a result of the investment will amount to £680,000. This figure excludes depreciation, but does include an allocation of general overheads, which are not expected to increase as a result of undertaking this project, amounting to £20,000 per annum. The capital assets will be depreciated on a straight line basis over the five years assuming a nil residual value. The company expects to incur training and development expenses of £50,000 in the first year and £20,000 per year thereafter. The company estimates that an additional…
- Delta Plc is considering investing in bespoke software solutions, which requires an initial investment of £130,000. The annual cash inflows during years 1-3 are expected to be £38,000 for year 1; £43,000 for year 2 and £50,000 for year 3. The company’s money cost of capital is 6% and inflation is expected to be 3% during the life of the project. Required: c) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company. d) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places), and state clearly whether the project should be undertaken by the company. e) Discuss the likely impact of your outcomes in parts c) and d) above on Delta Plc.Delta Plc is considering investing in bespoke software solutions, which requires an initial investment of £150,000. The annual cash inflows during years 1-3 are expected to be £50,000 for year 1; £55,000 for year 2 and £62,000 for year 3. The company’s money cost of capital is 7% and inflation is expected to be 4% during the life of the project. Required:a) Calculate the ARR of the project, taking inflation into account. b) Calculate the (undiscounted) Payback Period of the project, taking inflation into account. c) Calculate the NPV of the project using the money cost of capital as the discount rate. d) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places). e) Discuss the impact that the decision made on the project acceptance based on the money cost of capital and real rate of return would have on Delta Plc.Honeydew Bhd has been presented with an opportunity to invest in a project. Investment Required is RM60,000,000, Annual Gross Income is RM14,000,000, Annual Operating Costs is RM5,500,000 and nil for Salvage Value after 10 years. The project is expected to operate as shown for ten years. If your management expects to make 10% on its investment before taxes. Calculate the Internal Rate of Return (IRR) for this project and would you recommend Honeydew Sdn. Bhd this project? Explain.