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Amina is a financial analyst at McKinsey Consultant. She is currently assigned to value the Lagoona's 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 Lagoona's 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 Lagoona's requires BD 20,000 as working capital for next 3 years to run their business. The Lagoona's 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: a. Fill-in the missing information of pro-forma information below (1 mark) b. Calculate the cash flow from operating asset or total cash flow (CFFA) (1 mark) c. 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 Depreciation EBIT Taxes (15%) Net Income (11,000)
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