Question 2

Rerama Berhad is considering a new product launch. The project will cost RM680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 160 units per year; the price per unit will be RMI 9,000, variable cost per unit will be RM14,000, and fixed cost will be RM150,000 per year. The required rate of return on the project is 12.30 percent.

Based on Rerama Berhad experience, they think that the unit sales, variable cost, and fixed cost projections are probably accurate to within 10 percent.

From the above information, you are required to prepare the Net Present Value (NPV) for the best and worst-case scenario. Based on the NPV, interpret your findings. (10 Marks)