Question
Jamuna Group is evaluating the proposal of a new RMG factory called Jamuna Fabrics. Jamuna Group is renting a premise of 50,000 Square feet in
Jamuna Group is evaluating the proposal of a new RMG factory called Jamuna Fabrics. Jamuna Group is renting a premise of 50,000 Square feet in Savar and Jamuna Fabrics is planning to use 10,000 Square feet from this facility. The rest of the premise will be used by another RMG factory of Jamuna Group called Jamuna Exclusive Fabrics. From these two factories, Jamuna Group expects to have a total output of 50,000 units of cloths at USD 3 per cloth and Jamuna Fabrics will have 40% of this total output. Total capital cost is USD 20,000 and is depreciated using the straight-line method over five years to a zero-salvage value. The monthly salary expense will be USD 2500, whereas annual utility and other expense will be USD 2,000. The annual total rent of 50,000 Square feet premise is USD 25,000. Jamuna Fabrics will need to annually pay USD 6000 as staffs festival bonus. Variable costs are 10 per cent of annual sales revenue. Assume, initially you require USD 5,000 in working capital for this project. However, after the project you will not receive any amount from the working capital. Besides, there are no additional cash inflows and outflows from this project. The required rate of return Jamuna Exclusive Fabrics is 12% and for Jamuna Fabrics is 15 per cent. The tax rate is zero per cent. Calculate the NPV for Jamuna Fabrics. Also conduct a sensitivity analysis where variable cost is 15 percent of annual sales revenue. For both the calculation, show detailed calculation
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