JD Sdn Bhd has developed a new industrial detergent that can be used in motor vehicle garages. It would cost RM1 million to buy the equipment necessary to manufacture the blenders, and initially it would require net operating working capital equal to 10% of the 1st year sales. The project would have a life of 5 years. If the project is undertaken, it must be continued for the entire 5 years.

The firm believes it could sell 50,000 units per year. The detergents would sell for RM15 per unit. After the first year, JD intends to increase the sales price by 3% annually.

The variable cost is RM5 per unit. will also increase at the inflation rate of 3%.The companys fixed costs would be RM250,000 at Year 1 and would also increase at a rate of 3% annually.

The equipment would be depreciated over a 5-year period, using the straight-line method. The annual depreciation will be calculated based on a salvage value of the equipment at the end of the projects 5-year life of RM100,000. The company however estimated the machine can be sold as scrap for RM250,000. The corporate tax rate is 25%.

The cost of capital is 10%.

a. Develop a spreadsheet model and use it to find the projects NPV, IRR, and payback.

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