QUESTION ONE A Malaysian food manufacturing company is planning to renovate it's food preparation area in getting ready for the expected post Covid boom in business. The finance department have put together the following information to test the financial feasibility of this project. These cash flows have been recorded based on current prices and it is required that these cash flows be adjusted for future inflation based on the information provided below. PROJECTED CASH FLOWS BEFORE ADJUSTMENT FOR INFLATION (All amounts stated in RMOOO's) Year > 0 1 2 3 4 5 Capital Cost of Equipment (380) Scrap Value of Equipment 50 Net Revenue from Sales 150 280 350 450 300 Less: OPERATING COSTS: 1. Materials 2. Labour (Salaries) 3. Marketing Costs 4. Other General Costs TOTAL OPERATING COSTS NET CASH FLOWS Discount Factors @ 20% 1.000 0.833 0.694 0.579 0.482 0.402 Present Values @ 20% NET PRESENT VALUE Forecast parameters: 1. Materials costs are variable and will be 15% of Sales. These costs are expected to increase by 5% from Year 2 onwards 2. Labour costs for the first year of operations will be RM50,000 and are expected to increase by 10% from Year 2 onwards 3. Marketing Cost budget will be based on 5% of Sales for each year 4. Tax is to be ignored as the company expects to have a large amount of unutilised tax allowances during the next few years. 5. The Discount Rate to be applied based on the cost of capital and the discounting factors are provided. The capital investment is to be made and paid for upfront - i.e. the first day of the first year. Disposal proceeds (the residual value of the assets acquired for the project) are received at the end of year 5. Operating cash flows in years 1 to 5 are assumed to occur at the end of the year concerned. The company expects the investment to have a similar risk to the rest of its business. Its weighted average cost of capital is 20%. Page 2 (20 marks) REQUIRED: a. Complete the table of Projected Cash Flows shown above b. Explain if the project is financially feasible or not Type in your answer here: (5 marks) [TOTAL 25 MARKS] Page 3