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CASE STUDY 1 How Businesses are Adapting to the Covid Economy Kimin Brewery Limited, founded in 1928, is an integrated beverage company, and sells one
CASE STUDY 1 How Businesses are Adapting to the Covid Economy Kimin Brewery Limited, founded in 1928, is an integrated beverage company, and sells one ofthe world's most popular beer. Kimin also handles domestic distribution for several foreign brands, and it also owns stakes in several other breweries. The company now applies its own fermentation technology to areas such as plant genetics, pharmaceuticals and bioengineering. Kimin Brewery is currently appraising the proposal to retool one of their manufacturing plant site for something the world is in need of,- industrial quantities of hand gel and sanitizers. The project feasibility committee has collated forecasted investments, financing, cash flows and other information for this project. a Machineries and assembly facilities would have to be acquired and installed. These initial investments in capital assets are estimated to cost $300 million. An additional setup cost of $20 million is required to ensure compatibility ofthe production system with its fermentation technology. These would have to be fully paid before commencement of production. b. The newly acquired assets are expected to have a 12years useful life, till the patent for its fermentation technology ends. The scrap value at the end of asset's life is estimated at $30 million. Depreciation on the new assets will be at cost over 12 years using straight line method. c Annual sales in over the next 12 years are projected to be as follows: Year Annual sales ('million 5} 1 to 4 150 5 to S 130 9 to 12 100 d The initiation of production of would require increase in current assets of $30 million to finance operations such as inventory purchases. Current liabilities will also be expected to increase by $20 million. This net working capital will be released at the end ofthe project's life. e Annual fixed operating expenses is proiected as per below. Year Fixed Operating Expenses l'million 5} 1 toil 60 5 to 8 to 9 to 12 80 Included in fixed expenses are administration, selling and depreciation on the assets. Variable costs of production would be 20% of annual sales revenue. f The cost of capital for this project is forecasted at 15%. g Kimin pays a corporate tax rate of23%. Capital gain on asset disposal is charged at corporate tax rate
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