Hiap Seng Tyre Sdn. Bhd. is a Malaysian tire and tube manufacturer with its factory located in Shah Alam. Hiap Seng's products obtained ISO-9001 certification. Assume that Hiap Seng has recently developed a new model of scooter tire after extensive research and development and that the research and development costs have totaled about RM20 million. A RM5 million market testing expenses has also spent and proved that there is a significant market for the new model The new model will be put into the market this year and is expected to stay in the market for four years As a financial analyst of Hiap Seng, you have to evaluate and provide recommendation on whether to go ahead with the investment. Except for the initial investment that will occur immediately, all cash flows will occur at year end. To make the new model, Hiap Seng has to initially invest RM150 million in production equipment. The equipment can be sold for RM50 million at the end of four years. Hiap Seng can sell the new model to two distinct markets

1. Original manufacturer market-this market consists primarily of the large automobile companies that buy tires for new cars. The new model is expected to sell for RM40 per tire, and the variable cost of each tire is RM25.

2. Replacement market-this market consists of all tires purchased after the automobile has left the factory. The new model in this market is expected to sell for RM50 per tire, and the variable cost of each tire is RM25 which is the same as that in the original manufacturer market. The project will incur RM25 million in marketing and general administrative costs the first year and this cost is expected to increase at the inflation rate in subsequent years. Hiap Seng also intends to raise the selling price of the new tire at the inflation rate. The annual inflation rate is expected to remain constant at 3.5 percent. Variable costs are expected to increase at 1 percent above the inflation rate.Automobile analysts expect automobile manufacturers will produce 5.5 million new cars this year and production will grow at 2.5 percent per year thereafter. Each new car needs four tires. Hiap Seng expects the new model will capture 10 percent of the original manufacturer market. Analysts also estimate that the replacement market size will be 15 million tires this year and that it will grow at 2 percent annually. Hiap Seng expects the new model will capture 8 percent market share. The equipment will be depreciated on a seven-year MACRS schedule. The immediate initial working capital requirement is RM10 million, and the net working capital requirements will be 15 percent of sales. Hiap Seng's corporate tax rate is 40 percent and its required return is 15 percent.

Google Classroom, Excel Template:

For this assignment, refer to the HIAP SENG TYRE SDN BHD case in the Assignment Guidelines. For your convenience, we have entered the relevant values in the case such as the price, variable cost, etc. on the next page (SOLUTION PAGE Sheet). For this project, answer the following questions:
What is the profitability index of the project?
What is the IRR of the project?
What is the NPV of the project?
At what Original Equipment Manufacturer (OEM) price would HIAP SENG TYRE SDN BHD be indifferent to accepting the project? Assume the replacement market price is constant.
At what level of variable costs per unit would HIAP SENG TYRE SDN BHD be indifferent to accepting the project?
Refer to Assignment Guidelines file in Google Classroom for the report preparation for the case.

Tasks:

1. Refer to Case 1- Excel Template.xls in Google Classroom, compute the NPV, payback period, IRR, and PI of this investment project?

2. Based on the results, prepare a written report on your final recommendation to Hiap Seng Sdn Bhd. Please make sure to include detailed justification (supported by evidence: e.g. calculations, graphs/charts, summary tables) as well.