Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ABC limited is considering implementing a project X (New manufacturing machine). The following data has been provided in respect of the project 1. The cost

ABC limited is considering implementing a project X (New manufacturing machine). The following data has been provided in respect of the project

1. The cost of the project is Sh. 2 Million

2. The WACC of the company is 12%

3. The useful life of the project is 5 years

4. Depreciation method is straight line

5. Salvage value is expected to be Sh. 200,000

6. Incremental quantity produced and sold is 100,000 units

7. Variable cost per unit is Sh. 60

8. Tax rate is 30%

9. Contribution margin is Sh. 40

10. Fixed costs have been estimated at Sh. 500,000

Required: (i) Estimate the net cash flow from the project for years 1, 2, 3, 4 and 5

(ii) Estimate the Net Present Value of the project

(iii) Advise the company based on the Net Present Value (NPV)

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

The Routledge Handbook Of State Owned Enterprises

Authors: Luc Bernier, Massimo Florio, Philippe Bance

1st Edition

1138487694, 978-1138487697

More Books

Students also viewed these Finance questions

Question

Prove Equation (5.22).

Answered: 1 week ago