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Norbert Group of Companies ( NGC ) is made up of companies with various business portfolios. The Group is multifunctional and multidimensional, with subsidiaries and
Norbert Group of Companies NGC is made up of companies with various business portfolios. The Group is multifunctional and multidimensional, with subsidiaries and associates that can provide and sustain the provision of the basic needs and equipment to the Namibian nation at large. It prides itself as a group of wholly Namibian companies with the right personnel, expertise, and ability to procure equipment and render services efficiently.
NGC is evaluating an investment proposal to manufacture Product New, which has performed well in test marketing trials conducted recently by the company's research and development division. The following information relating to investment proposal has now been prepared.
tableInitial investment,N $ millionSelling price current price termsN $ per unitExpected selling price inflation, per yearVariable operating costs current price terms$ per unitFixed operating costs current price terms$ per yearExpected operating cost inflation, 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 Product New.
tableYearDemand units
It is expected that all units of Product New produced will be sold, in line with the company's policy of keeping no inventory of finished goods. No machinery scrap value is expected at the end of four years, when production of Product New is planned to end. For investment appraisal, NGC uses a discount rate of per year and a target return on capital employed of per year. Ignore taxation.
tableREQUIRED:MARKStableCalculate the Net Present Value NPV for the investment proposal andadvise whether the investment proposal is financially acceptable. Roundaoff unit prices to two decimal places and show your figures to thenearest
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tablebtableUsing a cost of capital of calculate the Internal Rate of Return IRRfor the investment proposal to the nearest whole number and advisewhether the investment proposal is financially acceptable. show yourfigures to the nearest
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