Question
Amina is a financial analyst at McKinsey Consultant. She is currently assigned to value the Lagoonas F&B project in Bahrain whether the project is feasible
Amina is a financial analyst at McKinsey Consultant. She is currently assigned to value the Lagoonas F&B project in Bahrain whether the project is feasible to undertake or not. The business is estimated to sell 50,000 units, with a selling price of BD 1.25/unit. The variable cost per unit is BD 0.15, and fixed cost of BD 11,000. The Lagoonas requires BD 20,000 as working capital for next 3 years to run their business. The Lagoonas F&B has a fixed asset of BD54,000 that assume to be fully depreciated for next 3 years. Amina has been informed to use straight-line method to find deprecation cost. The current corporate tax is 15%. Required rate of return is 10%. By using capital budgeting techniques, Amina needs to answer following things:
- Fill-in the missing information of pro-forma information below (1 mark)
- Calculate the cash flow from operating asset or total cash flow (CFFA) (1 mark)
- Calculate the NPV of the project and should Amina accept/reject the project? Explain your reasons. (2 marks)
Pro-forma income statement
Sales (50,000 units at BD 1.25/unit) | BD |
Variable Costs (BD 0.15/unit) | |
Gross profit | |
Fixed costs | (11,000) |
Depreciation |
|
EBIT |
|
Taxes (15%) |
|
Net Income |
|
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