The following cash flow estimation has been prepared by Dani, an executive of Sunny Berhad.

	(RM, thousands)
YEAR	0	1 to 10
Initial cost	(1,000)
Units sold		100
Price/unit		15
Total revenue		1,500
(-) Cost of goods sold		800
Gross Profit		700
Operating expenses:
Depreciation		100
Interest expense		100
Income before tax		500
Tax at 40%		200
Income after tax		300

Dani has approached Danisha, his partner in the coming project to discuss on the figures. Their conversation are as follows:

Danisha, heres how I figure it: Boss says our corporate goal should be to increase earnings by at least 15% every year, and this project certainly increase earnings. It adds RM300,000 to net income after tax every year. My trusty calculator tells me that the rate of return on this project is 30% (RM300,000/RM1,000,000), well above our minimum target return of 10%. If you want to discount the value, its NPV discounted at 10% is around RM844.00. So, what do you think Danisha?

Well, Dani, it looks pretty good, but I do have few questions.

Shoot, Danisha.

What about increases in accounts receivable and stuff like that?

Not relevant. We will get that money back when the project terminates, so it s equivalent to an interest-free loan, which is more of a benefit than a cost.

But, Dani, what about extra selling and administrative costs? Havent you left those out?

That is the beauty of this, Danisha. Given the recent recession, I figure we can handle the added business with existing personnel. In fact, one of the virtues of the proposal is that we should be able to retain some people we would otherwise have to terminate.

Well, youve convinced me, Dani. Now, I think it will be only fair if the boss puts you in charge of the existing new project.

Required:

As students of Financial Management, discuss how many errors you can spot and explain briefly why each is an error. By giving your own assumptions when needed, prepare a new cash flow estimation for the next 10 years.