Project 1: Smartwatch ZT 3000 The business case team had compiled the following baseline information surrounding the Smartwatch ZT 3000 project: 1. The life of the Smartwatch ZT 3000 project was expected to be six years. Assume the analysis took place at the end of 2022. 2. The suggested retail price of the smartwatch was RM150. Gross margins for high-end wearables averaged about 40% at the retail level, meaning each watch sold would net N ekia Corporation RM60. 3. The global wearables market in 2021 totalled approximately RM74.5 billion and was expected to grow at 1.8% from 2021 to 2028, reaching RM84.4 billion by 2028. Based on market research and analysis of other recent athlete endorsements, the Nekia Corporation marketing division estimated the following sales volumes for Smartwatch ZT 3000: 2023 2024 2025 2026 2027 2028 Number sold 1.1 2.0 1.3 1.4 1.5 1.0 (millions) 4. The 2024 number assumed Lee Zii J ia participated in the 2024 games in Paris and won at least one medal. 5. For the rst two years, the introduction of Smartwatch ZT 3000 would reduce sales of existing Nekia Corporation phone as follows: a. Lost sales: 2023: RM38 million 2024: RM17 million b. Assume the lost revenue had the same margins as Smartwatch ZT 3000. 6. In order to produce the smartwatch, the rm needed to build a new factory in Batu Kawan. This required an immediate outlay of RM150 million, to be depreciated at 10% per annum using straight line method. The rm\"s analysts estimated the building would be sold for RM22 million at project termination. 7. The company must immediately purchase equipment costing RM18 million. Freight and installation of the equipment would cost RM2 million. The cost of equipment and freight/installation was to be depreciated at 15% per annum using straight line method It was believed the equipment could be sold for RM3 million upon project termination. 8. Fixed assets can claim capital allowance on a 25% reducing balance basis. A balancing allowance is claimed in the final year of operation. 9. In order to manufacture Smartwatch ZT 3000, two of the rm's working capital accounts were expected to increase immediately. Approximately RM15 millions of inventory would beneeded quickly to ll the supply chain. In year 2025, the working capital needed would be RM17 million. All working capital would be recovered at the end of the project by the end of the sixth year. 10. Variable costs were expected to be 60% of revenue. 11. Selling, general, and administrative expenses were expected to be RM8 million per year. 12. Lee Zii Jia would be paid RM3 million per year for his endorsement of Smartwatch ZT 3000, with an additional RMl million Olympic bonus in 2024. Other advertising and promotion costs were estimated as follows: 2023 2024 2025 2026 2027 2028 13. Nekia Corporation had already spent RM2 million in research and development on Smartwatch ZT 3000. 14. The Smartwatch ZT 3000 project was to be financed using a combination of equity and debt. The interest costs on the debt were expected to be approximately RM1.2 million per year. The Nekia Corporation discount rate for new projects such as this was 11%. 15. Nekia Corporation's effective tax rate was 24%. The tax is payable one year in arrears. The CEO was worried about the marketing approach for Smartwatch ZT 3000 targeting 12- to 18 yearold males. Recent market data showed the average age of wearables purchasers to be just over 27 years, up from 24 three years earlier. This trend was expected to continue as the population aged. Success would depend on an effective marketing and advertising campaign that targeted not only the younger consumer but which reached the ultimate purchaser who was more likely to be a parent. Project 2: Energy-saving smartwatch The CEO was still contemplating the Smartwatch ZT 3000 project when she began reviewing another proposal for a new energy-saving smartwatch being considered. Nekia discovered a business opportunity to purchase energy-saving smartwatches from the OEM factory, repackaged them, and sold them to the consumer in Malaysia. There are 3 different models namely P88 Pro Max, P88, P88 Pro. The forecasted demand and price in the year 2023 are as follows: P88 Pro Max P88 P88 Pro Total (High-End device) (Low-End device) (Mod-End device) Number of items can be sold m 300 600 1800 RML2oo msoo moo Total revenue RM1,080,000 RM150,000 RM540,000 RM1,770,000 Purchase cost per item 1150 480 890 Total purchase costs RM1,035,000 RM144,000 RM534,000 RM1,713,000 Allocated xed expenses (Includes all labour) RM57,090 RM6,540 RM14,500 RM78, 130 Total costs RM1,092,090 RM150,540 RM548,500 RM1,791,130 Prot (loss) (RM12,090) (RM540) (RM8,500) (RM21, 130) Agenda for a Forthcoming Management Meeting A management meeting has been scheduled in the last week of March 2022 to discuss, deliberate and decide on the best course of action for each of the following issues relating to the business. Project 1: Smartwatch ZT 3000 To review and critically evaluate whether Nekia Corporation should invest and produce Smartwatch ZT 3000 Project 2: Energy-saving smartwatch To review and critically evaluate whether to proceed with the new business opportunity. Required: As the newly appointed management accountant of Nekia Corporation, prepare a REPORT incorporating relevant financial analyses, other relevant information plus your recommendations to assist the management of the company to decide on the best course of action for each of the items stated in the agenda for the forthcoming meeting. Your report must include EACH of the under-noted items in the agenda as follows: Project 1: Smartwatch ZT 3000 1. Which cash ows should be incorporated into the project's forecast? Why or why not? 2. Does Smartwatch ZT 3000 appear attractive from a quantitative standpoint? To answer this question, estimate the project's payback, net present value, and internal rate of return. 3. Suggest strategic factors that should be considered before Nekia undertake the project. Project 2: Energy-saving smartwatch 1. What is breakeven for the year? What concerns, if any, do you have about this breakeven figure? 2. Given that its preliminary budget shows a sizable loss, Nekia Corporation must consider ways to eliminate this loss. What are the options should management consider to increase the protability of the project? 3. Nekia Corporation thinks it can increase the sales of its products by advertising in local newspapers, and has decided to spend RMl,000 on advertising. To get the most out of its advertising expenses, it has decided to concentrate on one product only. Given financial concerns only, please discuss how it should decide which product to emphasize? 4. One of the managers of Nekia Corporation has suggested that, since the company loses so much P88 Pro max, it should discontinue selling them. What advice would you give Nekia about this decision