BBMF4834 ADVANCED FINANCIAL MANAGEMENT 4RAC Coursework Test 1 (Week 7) 2 hours Lavender Berhad (Lavender) is evaluating the feasibility of Project A, which is a new line of business that is different from its existing business operations. The directors are pursuing a corporate strategy of diversifying into a new line of business because its existing business is facing declining sales due to substitute products introduced by the competitors. Below are the detailed cash flow projections for Project A, with 4 years of useful life: Fixed assets Year 0: Cost of investment is RM25 million [capital allowance is claimable on |Year 4: Disposal value is RM2 million a 25% reducing balance basis] Working capital Year 0: Initial investment required is RM3 million Year 1: Investment required is increased to RM5 million Year 2: Investment required is increased to RM6 million Revenue Year 1: RM5 million Year 2: RM8 million Year 3: RM15 million Year 4: RM25 million Operating costs Year 1: RM2 million Year 2: RM3 million Year 3: RM5 million Year 4: RM7 million Corporate taxation rate 24% (payable in the same year when profit is earned) Volatility of project cash flows RM0.2 million per annum