Answered step by step
Verified Expert Solution
Question
1 Approved Answer
It is Well with my Soul (IWMS) Co, is evaluating an investment proposal to manufacture GB pen drives, which bas performed well in fest marketing
"It is Well with my Soul" (IWMS) Co, is evaluating an investment proposal to manufacture GB pen drives, which bas performed well in fest marketing trials conducted recently by the company's research and development division. The following information relating to this investment proposal has now been prepared. Initial investment GHe 3 million Selling price (current price terms) GHe 20 per unit Expecied selling price inflation is 3% per year as provided in the table below. Variable operating costs (current price terms) GHe 8 per unit Fixed operating costs (current price terns) GHc 150,000 per year Expected operating cost inflation 5% per year . The research and development division has prepared the following demand forecast as a result of its test marketing trials. The forecast reflects expected technological change and its effect on the anticipated life-cycle of GB pen drives. It is expected that all units of GB pen drives produced will be sold, in line with the company s policy of keeping no inventory of finished goods. Terminal value or machinery scrap value of GHC 50,000 is expected at the end of four year, when production of GB pen drives is planned to close. Required a) Clearly state two ways on how will you distinguish between cashtlows and profits of a company ( 2 marks) b) Determine the relevant cash flows to be used to appraise the propesal of the manufacture of the GB pen drive. (6.5.larks) c) Due to macroeconomic conditions and import charges, the variable operation cost has increased to GHe 15 per units while the fixed operation eost has also increased to GHe 500,000 . Evaluate the impact of these changes to the cash flows (6.5 Marks) Potal =(15 Marks) "It is Well with my Soul" (IWMS) Co, is evaluating an investment proposal to manufacture GB pen drives, which bas performed well in fest marketing trials conducted recently by the company's research and development division. The following information relating to this investment proposal has now been prepared. Initial investment GHe 3 million Selling price (current price terms) GHe 20 per unit Expecied selling price inflation is 3% per year as provided in the table below. Variable operating costs (current price terms) GHe 8 per unit Fixed operating costs (current price terns) GHc 150,000 per year Expected operating cost inflation 5% per year . The research and development division has prepared the following demand forecast as a result of its test marketing trials. The forecast reflects expected technological change and its effect on the anticipated life-cycle of GB pen drives. It is expected that all units of GB pen drives produced will be sold, in line with the company s policy of keeping no inventory of finished goods. Terminal value or machinery scrap value of GHC 50,000 is expected at the end of four year, when production of GB pen drives is planned to close. Required a) Clearly state two ways on how will you distinguish between cashtlows and profits of a company ( 2 marks) b) Determine the relevant cash flows to be used to appraise the propesal of the manufacture of the GB pen drive. (6.5.larks) c) Due to macroeconomic conditions and import charges, the variable operation cost has increased to GHe 15 per units while the fixed operation eost has also increased to GHe 500,000 . Evaluate the impact of these changes to the cash flows (6.5 Marks) Potal =(15 Marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started