Question
What is the expected COGS for the project in Year 10? 1. Capital Expenditure i. The business would be launched immediately with the procurement of
What is the expected COGS for the project in Year 10? 1. Capital Expenditure i. The business would be launched immediately with the procurement of capital equipment worth 1,500 million. ii. The business would be closed down after 10 years at which point, the equipment would be sold for 180 million. iii. The capital equipment would be depreciated using the WDV method at a rate of 25% pa. The depreciation is fully tax deductible. 2. Working Capital Investment i. The business would require an initial working capital investment of 125 million. ii. No additional working capital investment would be required over the duration of the project. iii. This working capital investment would be fully recovered at the end of Year 10, when the business is closed. 3. Sales i. He expects to sell 5 million units of the SWZ in Year 1. ii. Sales are expected to drop by 10% every year partly due to competition and partly due to fall in innovation quotient of the product. iii. Selling price per unit is expected to be constant at 250 over the 10 year period. 4. Costs i. Cost of production is expected to be 100 per unit in Year 1 and rise at 5% pa thereafter. ii. The project will also incur some fixed costs in relation to rentals, marketing, administration etc. which are expected to be equal to 100 million for each of the 10 years. 5. Taxes i. The firm faces a tax rate of 25% . ii. Both profits and capital gains are subject to the same tax rate. 6. Cost of capital for the project is 15%.
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