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What will the internal rate of return (IRR) be for both cashflows? And in light of this, what does this mean for the introduction of
What will the internal rate of return (IRR) be for both cashflows? And in light of this, what does this mean for the introduction of 'Momos sauce bottles' and 'Momos shell kit'? Should they be introduced by the company or not?
Continuing with the surge to expand and continuous look out for new ventures, below proposals are now available for consideration by the company. The Marketing manager suggested that if the company can sell its own Momos sauce bottles or ready-made Momosshell kit, it could be sold for three years, but not after that. The company did some market research and gathered the basic cash flows information. The cost of the market research information was $15,000. | On the basis of this research, cash flows are expected to be as follows: Figures in '000 AED Momos sauce bottles 2018 2019 2020 Cash in flows 700 700 825 Momos shell kit 2018 2019 2020 Cash in flows 720 720 1,905 . The cost of the new equipment willbe f1,555,000 for Momos sauce bottles. This will be spent by the end of December 2017. The cost of the new equipment will be f2,155,000 for Momos shell kit. This will be spent by the end of December 2017. Depreciation of all fixed assets on the straight-line basis of 3 years' useful life. The company usually requires a payback period of less than 2 years. The cost of capital is 10%. The following information is also available: After 1 year After 2 years After 3 years Discount factors 10% 0.909 0.826 0.751 The net present value of the product lines at a discount rate of 25% have been calculated as f124,600 (negative) for Momos sauce bottles and f142,840 (negative) for Momo shell kitStep by Step Solution
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