Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Part B Capital Budgeting (60 marks) A regional Manufacturer for furniture product decided to set up its plants to produce furniture products. The company starts
Part B Capital Budgeting (60 marks) A regional Manufacturer for furniture product decided to set up its plants to produce furniture products. The company starts within a few months (2021), and the investment outlay would be $4 million. When the company begins operating in 2022, it would incur the operating costs with the expected value of $800,000 for 2022 and expected to increase 10% a year until 2026 when the project will be winded up. Given the recent demand from recovery of CCOVID-19, for 2022, the company expected to show revenues of approximately $2.5m for the year 2022 and expected to grow at the rate of 12%, a year, which will last until 2026. At the end of project life in 2026, the plants and equipment will have a salvage value of $1m. Taxes would be paid at a 30% rate, and the equipment depreciation is to be calculated on a straight-line basis over the six-year life to zero balance. The project will a cost of capital of 10% per year. Prepare cash flow statement and compute the NPV and IRR of the proposed project. to show revenues of approximately $2.5m for the year 2022 and expected to grow at the rate of 12%, a year, which will last until 2026. At the end of project life in 2026, the plants and equipment will have a salvage value of $1m. Taxes would be paid at a 30% rate, and the equipment depreciation is to be calculated on a straight-line basis over the six-year life to zero balance. The project will a cost of capital of 10% per year. Prepare cash flow statement and compute the NPV and IRR of the proposed project. Comment on the feasibility of the project. Perform a sensitivity analysis on NPV of the project on the following scenarios: (1) Sales increases/decreases by 10%. Comment on the feasibility of the project under each scenario. NPV=? IRR=? IRR=? NPV=? Increase sales by 10% Base case Decrease sales by 10% NPV=? IRR=
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