Initial project set-up costs are estimated to be SEK15m (year 0-2023). Further estimated operating costs and projected revenues are as follows: Operating costs - Years 1-5 (2024-2028) All figures are in millions of SEK. Further costs are presented in the table below. No inflationary adjustments have been made in the Year Operational costs Maintenance costs Tech update costs Y1 6 4 3 Year Revenue (merchant fees) Y2 6 43 Important points to note (after year 1): • Operational costs are estimated to increase by 3.5% per year • Maintenance costs are estimated to increase by 2.8% per year Y1 8 • Tech update costs are estimated to increase by 2% per year Revenue - revenue projections have been estimated as are follows: Y3 6 4 3 Y2 20 The discount rate used by BioMet is 4.5% per annum. Task Y3 22 Y4 6 4 3 Y4 25 Y5 6643 Y5 30 table. 1. Prepare a cashflow forecast and use investment appraisal techniques to calculate Net Present Value (NPV), Return on Capital (ROC) and Payback Period (PB) for the BioMet face pay project. 2. Show your workings in SEKm over the 6-year period (2023-2028) 3. Comment on the financial implications of the results and indicate if you feel the project should go ahead and why.
Initial project set-up costs are estimated to be SEK15m (year 0-2023). Further estimated operating costs and projected revenues are as follows: Operating costs - Years 1-5 (2024-2028) All figures are in millions of SEK. Further costs are presented in the table below. No inflationary adjustments have been made in the Year Operational costs Maintenance costs Tech update costs Y1 6 4 3 Year Revenue (merchant fees) Y2 6 43 Important points to note (after year 1): • Operational costs are estimated to increase by 3.5% per year • Maintenance costs are estimated to increase by 2.8% per year Y1 8 • Tech update costs are estimated to increase by 2% per year Revenue - revenue projections have been estimated as are follows: Y3 6 4 3 Y2 20 The discount rate used by BioMet is 4.5% per annum. Task Y3 22 Y4 6 4 3 Y4 25 Y5 6643 Y5 30 table. 1. Prepare a cashflow forecast and use investment appraisal techniques to calculate Net Present Value (NPV), Return on Capital (ROC) and Payback Period (PB) for the BioMet face pay project. 2. Show your workings in SEKm over the 6-year period (2023-2028) 3. Comment on the financial implications of the results and indicate if you feel the project should go ahead and why.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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