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Imagine you intend to start a new product line in your business, and you have 2 options available. You are now making a feasibility plan
Imagine you intend to start a new product line in your business, and you have 2 options available. You are now making a feasibility plan to identify which of the two options is the most beneficial in terms of profit, so you do capital budgeting for both. a. Both choices are going to cost you PKR 450,000. You cannot spend more than that so running both product lines at a time is not an option. The following are your critical data: Option A: Revenues = 300K in year one, increasing by 10% each year. Expenses = 150K in year one, increasing by 15% each year. Depreciation Expense = 15K each year. Tax Rate = 25% Discount Rate = 10% Option B: Revenues = 450K in year one, increasing by 8% each year. Expenses = 160K in year one, increasing by 10% each year. Depreciation Expense = 10K each year. Tax Rate = 25% Discount Rate = 11% b. Compute and analyze items (a) through (h) a. What 2 product lines do you have in your mind to start b. A 5-year projected income statement of both options c. A 5-year projected cash flow of both options d. Discounted Payback e. Net Present Value f. Profitability Index g. Internal Rate of Return h. MIRR
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