Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me .. Please help me . Urgently needed . Sure i will support you . Upvote . Question 2 The director of Akron

Please help me .. Please help me . Urgently needed . Sure i will support you . Upvote .

image text in transcribed

Question 2 The director of Akron Sdn Bhd has asked you to look at some numbers and to check the viability of the company's latest project. The information is presented as follows; New production line costing RM36 million to be installed. This can last 4 years and will be depreciated straight line till zero. . It is estimated that the resale value of this production line will be RM 6 million in 4 years time. Investment in working capital of RM 3 million is also required. Sales of RM24 million a year over the next 4 years. The cost of goods sold will be RM 8 million yearly over the next 4 years. Current operating expenses is RM2 million. It is expected that operating expenses will increase to RM5 million a year (excluding depreciation) when the new line is operational. The line will be located in a currently vacant lot. An alternative plan would be to rent out this place for RM0.5 million a year. A willing tenant has already come forward. RMO.3 million has already been paid to a consultant for the engineering drawings of this line. Akron's tax rate is 30% over the next 4 years. The company's weighted average cost of capital is 10% Required: a. Calculate the net present value of the new production line. b. We assume that the WACC is a fixed rate over the next 4 years. Explain why this assumption is incorrect

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions