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4 B. Sweets Company is considering opening a new store selling confectionaries and it plans to operate it for only 6 years. The information
4 B. Sweets Company is considering opening a new store selling confectionaries and it plans to operate it for only 6 years. The information pertaining to the project is as follows: a) The company would invest RM195,000 to purchase equipment and furnishings. b) It would incur RM100,000 for working capital, which would be released for use elsewhere at the end of the project. c) Rent on the building used by the business will be RM20,000 per year. d) In addition to building rent, other annual cash outflows for operating costs will amount to RM41,000. e) The company's accountant estimates that the annual cash inflow from the business will amount to RM120,000. f) He estimates that the equipment and furnishings could be sold at the end of the project period for about 10% of its original cost g) All cash flows, except for the initial investment, would occur at the end of each year. h) The discount rate used by the accountant is 16%, with discount factors as below: Year 1 2 3 4 5 6 Present value factors for 16% rate 0.862 0.743 0.641 0.552 0.476 0.410 Present value annuity factor for 16% rate 3.685 Required: a) Compute the net present value (NPV) of this project. 18 marks)
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