Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a) Maju Construction (MCo) Sdn. Bhd. is bidding on a contract to build four tiny camping house (TCH) a year for the next three years

a) Maju Construction (MCo) Sdn. Bhd. is bidding on a contract to build four tiny camping house

(TCH) a year for the next three years for Sintokian campsite. Each TCH will be sold at the

price of P. The project requires the purchase of RM132,000 of equipment which will be

depreciated using simplied straight-line depreciation to a zero book value over the three

years. The equipment can be sold at the end of the project for RM80,000. MCo will

also need RM32,000 in net working capital over the life of the project. The xed costs will

be RM36,000 a year and the variable costs will be RM1?6,000 per TCH. MCo required rate

of return is 14% for this project and the tax rate is 24%. Based on the information given:

Calculate the initial outlay of the project. i) Calculate the initial outlay of the project. (1 mark)

ii) Calculate the annual cash ows of the project. (I mark)

iii) Calculate the terminal cash ows of the project (2 marks)

iv) What is the minimum amount that MCo should bid per TCH if the company required NPV of RM20,000 on this project? (2.5 marks) b) PKP Sdn. Bhd. must choose between two machines, X and Y. The purchasing costs today

and maintenance expenses at the end of every year for these two machines are given as follows: j Year Machine X Machine

0 -RM2,000,000 -RM2,500,000

1 -RM200,000 -RM210,000

2 -RM200,000 -RM210,000

3 -RM200,000 -RM210,000

4 - -RM210,000

5 - -RM210,000 All cash ows occur at year-end and the discount rate is 12%. Assume that revenues are the

same regardless of the machine, and assume that whichever machine the company chooses,

it will continue to buy that model forever. Which machine should the company choose? Tax

rate is 24% and simplied straight line is used as the method of depreciation. (2.5 marks) c) Explain why net operating working capital is included in a capital budgeting analysis

and how it is recovered at the end of a project's life.

(I mark)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter

8th Canadian Edition

007133887X, 978-0071338875

More Books

Students also viewed these Finance questions