Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

In excel format please and as specific as possible a) Suppose Gumede Investments considering the following project, where all of the dollar figures are in

In excel format please and as specific as possible

a) Suppose Gumede Investments considering the following project, where all of the dollar figures are in thousands of Kwachas. In year 0, the project requires K275 000 investment in plant and equipment, is depreciated using the straight-line method over seven years, and there is a salvage value of K59 000 in year 7. The project is forecast to generate sales of 5,400 units in year 1, rising to 25,000 units in year 5, declining to 7,000 units in year 7, and dropping to 100 in year 8. The inflation rate is forecast to be 2.5% in year 1, rising to 4% in year 5, and then leveling off. The real cost of capital is forecast to be 9% in year 1, rising to 12.5% in year 7. The tax rate is forecast to be a constant 37.5%. Sales revenue per unit is forecast to be K153 in year 1 and then grow with inflation. Variable cost per unit is forecast to be K92 in year 1 and then grow with inflation. Cash fixed costs are forecast to be K80000 in year 1 and then grow with inflation. What is the project NPV?

b) Consider the same project as problem a), but modify it as follows. Suppose that Direct Labor, Materials, Selling Expenses, and Other Variable Costs are forecast to be K52, K37, K23, and K8, respectively, in year 1 and then grow with inflation. Lease Payment, Property Taxes, Administration, Advertising, and Other cash fixed costs are forecast to be K41000, K7300, K6800, K11200, and K7300, respectively, in year 1 and then grow with inflation. What is the Total Variable Cost / Unit and the Total Cash Fixed Costs?

c) Consider the same project as problem b), but modify it as follows. Suppose we add that the project will require working capital in the amount of K12.3 in year 0 for every unit of next year's forecasted sales and this amount will grow with inflation going forward. What is the project NPV?

d) Consider the same project as problem c). Assume that the product life-cycle of seven years is viewed as a safe bet, but that the scale of demand for the product is highly uncertain. Analyze the sensitivity of the project NPV to the units sales scale factor and to the cost of capital.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Multifractal Detrended Analysis Method And Its Application In Financial Markets

Authors: Guangxi Cao, Ling-Yun He, Jie Cao

1st Edition

9811079153, 978-9811079153

More Books

Students also viewed these Finance questions

Question

Describe the types of power that effective leaders employ

Answered: 1 week ago

Question

Describe how leadership styles should be adapted to the situation

Answered: 1 week ago