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GoAway was introduced to the Malaysian market in 2005. With the tagline "Environmentally Friendly, Happy Life, GoAway positions itself as the brand that cares for your health and the environment, providing 100% eco-friendly home appliances for your well-being. In recent years, people have become more concerned about where their water comes from and what their water includes, and have begin to worry about the overall safety of tap water due to factors like decontamination residue. GoAway has over 25 years of experience manufacturing water filtration systems and has developed the most advanced water filtration technology for a better life for everyone in the world. The company applies the Reverse Osmosis (R/O) filter which is the most reliable water filter system in the curent market to all Go Away water filtration units. The company intends to design water purifier specifically for Malaysians and expected become one of the best-selling water purifier. Thus, the GoAway's top management wants marketing team to submit a 3-year financial projection in order to forecast the revenue from the selling water purifier. Below are the summary of sales projection that submitted to the GoAway's management: Annual sales 40,000 units of water purifier Price : RM 400/unit : RM 3.5 million RM 4 million : 1 year : RM 3 million Annual advertising budget Manufacturing equipment costs Development time Development cost Net working capital Fixed cost Variable cost Bank interest rate : RM 3 million : RM 2.5 million per year : RM 100 per unit 4% Tax rate 30% The depreciation based on the 5-year class life in the Modified Accelerated Cost Recovery System (MACRS) (Table 4.1) and after 3 years, the market value of the equipment is assumed to be zero. (a) Determine the net present value (NPV) with a 15% discount rate and then evaluate the project. Does the project meet management's expectation on financial return? (6) 11. Calculate the investor's rate of return (IRR) and compare the IRR value with bank interest rate. Explain whether the project is good or poor investment. Determine the amount of cash requred for carrying out this project? Construct the cumulative project cash flow from the beginning of product development to the end of product life. 111 The product project team decides to seek a larger market share by lowering the price with the following sales projection in the following table: Year Unit sales Selling price, RM Revenues, RM 1000 1 400 16,000 40,000 90,000 2 275 24.750 17,500 3 70,000 250 To accommodate the increased production, the engineering team recommends that the equipment cost be increased to RM 7 million. Use the 5-year property class in the MACRS for depreciation (Table 4.1). The market value of the equipment after three years is RM 3.5 million. By considering the IRR, analyse either the project remains attractive or not? Table 4.1: Modified Accelerated Cost Recovery System (MACRS) tax-basis depreciation Percent of Total Depreciable Capital (Cro) for Class Life of 5 Years 7 Years 15 Years Year 10 Years 1 2 3 4 5 6 7 8 9 20.00 32.00 19.20 11.52 11.52 5.76 100.00 14.29 24.49 17.49 12.49 893 8.92 8.93 4.46 100.00 10.00 18,00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 100,00 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 10 11 12 13 14 15 16 5.90 5.91 5.90 5.91 2.95 100.00 GoAway was introduced to the Malaysian market in 2005. With the tagline "Environmentally Friendly, Happy Life, GoAway positions itself as the brand that cares for your health and the environment, providing 100% eco-friendly home appliances for your well-being. In recent years, people have become more concerned about where their water comes from and what their water includes, and have begin to worry about the overall safety of tap water due to factors like decontamination residue. GoAway has over 25 years of experience manufacturing water filtration systems and has developed the most advanced water filtration technology for a better life for everyone in the world. The company applies the Reverse Osmosis (R/O) filter which is the most reliable water filter system in the curent market to all Go Away water filtration units. The company intends to design water purifier specifically for Malaysians and expected become one of the best-selling water purifier. Thus, the GoAway's top management wants marketing team to submit a 3-year financial projection in order to forecast the revenue from the selling water purifier. Below are the summary of sales projection that submitted to the GoAway's management: Annual sales 40,000 units of water purifier Price : RM 400/unit : RM 3.5 million RM 4 million : 1 year : RM 3 million Annual advertising budget Manufacturing equipment costs Development time Development cost Net working capital Fixed cost Variable cost Bank interest rate : RM 3 million : RM 2.5 million per year : RM 100 per unit 4% Tax rate 30% The depreciation based on the 5-year class life in the Modified Accelerated Cost Recovery System (MACRS) (Table 4.1) and after 3 years, the market value of the equipment is assumed to be zero. (a) Determine the net present value (NPV) with a 15% discount rate and then evaluate the project. Does the project meet management's expectation on financial return? (6) 11. Calculate the investor's rate of return (IRR) and compare the IRR value with bank interest rate. Explain whether the project is good or poor investment. Determine the amount of cash requred for carrying out this project? Construct the cumulative project cash flow from the beginning of product development to the end of product life. 111 The product project team decides to seek a larger market share by lowering the price with the following sales projection in the following table: Year Unit sales Selling price, RM Revenues, RM 1000 1 400 16,000 40,000 90,000 2 275 24.750 17,500 3 70,000 250 To accommodate the increased production, the engineering team recommends that the equipment cost be increased to RM 7 million. Use the 5-year property class in the MACRS for depreciation (Table 4.1). The market value of the equipment after three years is RM 3.5 million. By considering the IRR, analyse either the project remains attractive or not? Table 4.1: Modified Accelerated Cost Recovery System (MACRS) tax-basis depreciation Percent of Total Depreciable Capital (Cro) for Class Life of 5 Years 7 Years 15 Years Year 10 Years 1 2 3 4 5 6 7 8 9 20.00 32.00 19.20 11.52 11.52 5.76 100.00 14.29 24.49 17.49 12.49 893 8.92 8.93 4.46 100.00 10.00 18,00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 100,00 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 10 11 12 13 14 15 16 5.90 5.91 5.90 5.91 2.95 100.00