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answer for c pls Question1 Johnny Depp Berhad is considering a project which requires an investment of RM500,000 in machinery with zero salvage value after
answer for c pls
Question1 Johnny Depp Berhad is considering a project which requires an investment of RM500,000 in machinery with zero salvage value after 5 years. This machine will be depreciated using straight- line over this period. The project sales forecast under normal economic scenario for the next 5 years is 20,000 units per annum and the selling price per unit is RM20. The labor costs per unit are RM6 and the material costs per unit are RM4. The fixed costs are RM40,000 per annum (relevant) and the project does not require any additional working capital. The beta factor of this investment is 3.0. The company has a target capital structure of 60% equity and 40% debt. The cost of debt after-tax is 8%. The risk-free rate is 4% and market rate of return is 7% However, the company recognizes that some of these estimates are subjected to economic condition. Given below is the estimated figure under different scenario: Sales volume Selling price Labor costs + 10% -10% +5% Boom Recession - 5% - Material costs 5% +5% -5% +5% From the above information you are required to answer the questions below: a. Calculate the weighted average cost of capital (WACC). (2 Marks) b. Use your answer in part (a) to calculate the Net Present Value using Cash Flows Analysis approach for this project under base, boom and recession scenario. (6 Marks) c. Using your own words and your own example, explain ONE (1) difference between sensitivity analysis and scenario analysis. (2 Marks) Step by Step Solution
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