CASH FLOW ESTIMATION (CLO2, PLO)

ANSWER ALL QUESTIONS.

Stimulus for questions at positions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11

The following text applies to the questions at positions 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11

EROSION COST

Elon Mist sales details on the existing products are as follows:

Product	Sales Vol (Unit)	Selling Price per Unit (RM)	Product Cost (% of selling price)
Lemon	20,000	25	30%
Lemony	15,000	33	35%
Lemonade	12,000	40	42%

The company plans to introduce Product C, which will affect the sales volume of the current products by 25% each.

Lavender will be sold for RM32.00 with production cost of 45% of selling price, and the sales volume is expected to be 25,000 units.

Complete the assessment.

Question 1

Total sales revenues of Lemon is RM_____________.

Question 2

Total Sales Revenues of the company's existing products are RM___________.

Question 3

The production cost per unit for Lemony is RM_________.

Question 4

Total production cost of the existing product is RM_________

Question 5

Net contribution margin per unit for Lemonade is RM__________.

Question 6

Total contribution margin of the existing products is RM__________

Question 7

The total sales revenues with the new product is RM_______________.

Question 8

Total contribution margin with the new product will be RM____________.

Question 9

The introduction of Lavender has caused RM___________ in erosion cost of the existing products.

Question 10

The profit contribution margin with the new product is ________%

Question 11

Using erosion cost basis, the company should proceed to introduce Lavender.

True

OR

False

Stimulus for questions at positions: 12, 13, 14

The following text applies to the questions at positions 12, 13, 14

Opportunity Costs

Revolution Records will build a new recording studio on a vacant lot next to the operations center. The land was purchased five years ago for $450,000. Today the value of the land has appreciated to $780,000. Revolutionary Records did not consider the value of the land (it had already spent the money to acquire the land long before this project was considered). The NPV of the recording studio was $600,000. How will the value affect the project?

Question 12

The rate of return on the land is ______%. (2 decimals)

Question 13

Should Revolution Records consider the land as part of the cash flow of the recording studio?

yes

OR

no

Question 14

If yes, what value should be used, $450,000 or $780,000?

Stimulus for questions at positions: 15, 16, 17, 18, 19, 20, 21, 22, 23, 24

The following text applies to the questions at positions 15, 16, 17, 18, 19, 20, 21, 22, 23, 24

Depreciation and Cost Recovery

Zul Cleaning Company bought a new delivery truck for RM45,000. Additional fitting for the truck costs RM2,500. The truck is expected to have a useful life of 5 years, and is classified as a light-duty truck and can be depreciated either by straight line method or MACRS.

MACRS rate: http://www.milefoot.com/math/businessmath/topics/macrs.htm

At the end of life the truck, it will be sold for RM5,000. The company's tax is 24%.

Question 15

The cost of the truck is RM__________

Question 16

The salvage value is RM__________

Question 17

Based on SLM, the annual depreciation expense is RM___________.

Question 18

Based on SLM. Accumulated depreciation in Year 3 is RM___________

Question 19

Based on SLM. The book value/ Net Asset Value (NAV) in Year 4 is RM_________

Question 20

Based on MACRS. The depreciation expense in Year 2 is RM__________.

Question 21

Based on MACRS. The accumulated depreciation expense in Year 4 is RM_____

Question 22

Based on MACRS. The book value/ NAV in Year 5 is RM__________.

Question 23

Based on MACRS. The gain/ loss of disposal of asset is RM________

Question 24

Based on MACRS. Assume: The truck is sold in Year 4 instead of Year 5 for the same value.

The after tax cash flow/ tax shield on the disposal of asset is RM__________.

Stimulus for questions at positions: 25, 26, 27, 28, 29, 30, 31, 32, 33, 34

The following text applies to the questions at positions 25, 26, 27, 28, 29, 30, 31, 32, 33, 34

Operating Cash Flows and Project Assessment

The following information is available for Solar Berhad.

		Year 1	Year 2	Year 3	Year 4
Annual Sales (unit)		63,000.00	increase year-on-year by 10%
Price		RM 38.50
Production cost		42% of sales price
Annual Fixed cost		RM 494,000.00
Depreciation exp
Tax rate		28%

The fixed asset of the company with NAV of RM1.2 m, is being sold at the termination of the project for RM 1.5 m.

The cost of capital is 6.30%

The initial outlay is RM2,400,000

Question 25

Calculate the recognized cash flow from disposal of asset. RM_________.

Question 26

Operating cash flow (a.k.a incremental cash flow) for Y1 is RM_________.

Question 27

Operating cash flow (a.k.a incremental cash flow) for Y2 is RM_________.

Question 28

Operating cash flow (a.k.a incremental cash flow) for Y3 is RM_________.

Question 29

Operating cash flow (a.k.a incremental cash flow) for Y4 is RM_________.

Question 30

Total PV of the project is RM_________.

.Question 31

NPV of the project is RM_____

Question 32

IRR is _________%. (2 decimals)

Question 33

MIRR is ___%.

Question 34

PI is _________.