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Assignment Question SBS Corporation has developed a new industrial detergent that can be used in motor vehicle garages. It would cost RM 1 . 5
Assignment Question
SBS Corporation has developed a new industrial detergent that can be used in motor vehicle garages. It would cost RM million to buy the equipment necessary to manufacture the blenders, and initially, it would require net operating working capital equal to of the st year sales amount. Annual net operating working capital will remain at of the next year's sales. The project would have a life of years. If the project is undertaken, it will be operated for the entire years.
The firm believes it could sell units per year. The detergents would sell for RM per unit. After the first year, SBS intends to increase the sales price by annually.
The variable cost is RM per unit and will increase at an inflation rate of The companys fixed costs would be RM in Year and would also increase at a rate of annually.
The equipment would be depreciated over a year period, using the straightline method. The annual depreciation will be calculated based on a salvage value of the equipment at the end of the projects year life of RM The company, however, estimated the machine could be sold as scrap for RM The corporate tax rate is The weighted average cost of capital is
Develop a spreadsheet model and use it to find the projects NPV IRR, and payback.
Conduct a sensitivity analysis to determine the sensitivity of NPV to changes in the sales price, number of units sold the variable costs per unit, fixed costs, and the cost of capital. Set these variables values at above and below their basecase values. Include a graph in your analysis.
Conduct a scenario analysis. Assume that the bestcase condition is with no increase in the sales price, a increase in the number of units sold, and a decrease in the variable cost per unit. All other variables remain the same. For the worstcase condition, there will be a decrease in units sold, a decrease in unit price and a increase in the variable cost per unit. The bestcase condition, worstcase condition, and the base case are assumed to have an equal probability. Determine the expected NPV the standard deviation of the NPV and the projects coefficient of variation NPV
Based on your analysis, would you recommend that the project be accepted? What added advise and special attention would you give to the company regarding the project?
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