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INSTRUCTION: THIS ASSIGNMENT SHOULD BE SUBMITTED IN SCANNED PDF FORMAT OF A HAND WRITTEN WORK SHOWING DETAILS OF WORKING. ALL QUESTIONS TO BE ANSWERED QUESTION 1 Pika Company Limited is evaluating a project that will manufacture new cooking oil. The project will require the purchase of machine at a cost of Ksh 4,600,000, installation cost of Ksh 400,000 and training of employees on how to use the machine at a cost of Ksh 300,000. The machine is expected to have a useful life of four years with a salvage value of Ksh 200,000 though it is expected to fetch Ksh 400,000 in the market. Management conducted a market survey at a cost of Ksh 325,000 and found projected demand for the cooking oil units as follows Year 1 2 3 4 Demand 28,000 units 35,000 units 45,000 units 48,000 units Selling price is set at Ksh 600 per unit in year one and would be increased by 5% per year. Direct material cost per unit is Ksh 100 and it's expected to remain constant. Direct labour cost is Ksh 180 per unit in year 1 and it's expected to increase at 8%. Cash overheads will remain constant at Ksh 2,500,000 per year. Sales agents will be paid a commission of 2.5% of sales every year. At inception, an investment in working capital of Ksh 400,000 will be done and will be maintained at 5% of sales in every year. All gains and losses are taxed at 30%. The discount rate is 20%. Required. (1) Evaluate the suitability of this project using net present value. (Il) Discuss other non-quantitative factors that should be considered before accepting this proposal Total marks 20 marksQUESTION TWO Mega bakes Limited is evaluating whether to replace a two years old labor-intensive machine that has three more useful years with a new automated machine in its bakery business. The company has provided you with following details. The two-year-old machine was purchased at a cost of Ksh 4,000,000 and has a salvage value of Ksh 500,000. It is depreciated using straight-line with a salvage value though in the market, it is expected to sell at Ksh 300,000 at the end of its useful life. If it is sold today, it expected price is Ksh 2,000,000. This machine is used to produce loaves of bread. A loaf of bread has a direct material cost of Ksh 15 and direct labour of Ksh 20. Annual cash operating expenses are Ksh 1,200,000. The machine produces 900,000 loaves per year. A loaf of bread sell at Ksh 50 and selling cost per loaf is Ksh 5. In the next three tears, the above costs, selling price and production volume is expected to remain constant. The proposed new automated machine will cost Ksh 12,500,000. It has an expected life of 3 years and salvage value of Ksh 800,000 though it is expected to sell at Ksh 300,000 at the end of its useful life. The new machine will initial require a working capital of Ksh 400,000 and annual cash operating expenses will be equal to 12% of annual sales. To produce a loaf of bread using the new machine, cost of direct material will remain the same but labour cost will lower by 40%. Production and sales volume will increase to 1,200,000 loaves per year over the next three years. Selling price and selling cost will remaining the same as under the old equipment. Straight-line depreciation method is used on both machines, all gains and losses will be taxed at 30% and company's discounting rate is 20% Required. Advice whether replacement should occur 20 marks THE END