You have been recently appointed executive in charge of finance for Omid (Pty) Lid. The company is considering investing in the production of solar panels and related products. The junior accountant has provided you with the following information: Details Year 1 R000 35 000 5350 10 700 500 5000 3000 Year 2 R000 49 000 7500 15 000 Year 3 R1000 53 200 9 000 18 000 650 5 000 3200 Year 4 R000 57 400 10 050 21 000 Sales Materials Labour Other variable overheads Fixed overheads Other operating costs Year 5 R000 55 200 9000 18 000 600 700 750 5000 3 100 5 000 3400 5000 3300 In addition, the junior accountant informs you of the following: All cash flows and profits forecasts were prepared in present terms and can be adjusted based on inflation in respective years Sales, variable overheads and fixed overheads are expected to suffer inflationary increases of 5% per year Materials and labour costs are expected to increase by 10% per annum Other operating costs are expected to increase by 4% per year; The tax rate is 28% and payable in the year profits are made: The company is financed by 75% equity and 25% debt with market values of R75m and R25m respectively. The company has an equity beta of 1.2. The rate on Treasury bills is 5% and considered to have no risk. The market risk premium is 7,5%. The company's after-tax cost of debt is 6% The following assumptions were made in preparing the financial information Profits are similar to cash flows for the purposes of this project evaluation: All receipts and payments arise at the end of the year to which they relate, except for the project's initial outlay of R30m which is to be paid ie immediately and Other operating costs figures have already adjusted for tax capital allowances and noncash depreciation adjustments. The noncurrent asset bought for the project has no residual value. | 1 (20) Required: Given the information above. calculate the following: Profits for the periods Weighted average cost of capital Net present value of the proposed project Recommendation on the acceptance or rejection of the project with justifications Determine what the discount rate would be the net present value is to approximately equate zero (13) Iv v (10) State any assumptions you make. Your assumptions must make sense given the requirements of the questions Round off rand amounts to the nearest rand. The discount factor should be rounded to three decimal places. Total Marks: 100 You have been recently appointed executive in charge of finance for Omid (Pty) Lid. The company is considering investing in the production of solar panels and related products. The junior accountant has provided you with the following information: Details Year 1 R000 35 000 5350 10 700 500 5000 3000 Year 2 R000 49 000 7500 15 000 Year 3 R1000 53 200 9 000 18 000 650 5 000 3200 Year 4 R000 57 400 10 050 21 000 Sales Materials Labour Other variable overheads Fixed overheads Other operating costs Year 5 R000 55 200 9000 18 000 600 700 750 5000 3 100 5 000 3400 5000 3300 In addition, the junior accountant informs you of the following: All cash flows and profits forecasts were prepared in present terms and can be adjusted based on inflation in respective years Sales, variable overheads and fixed overheads are expected to suffer inflationary increases of 5% per year Materials and labour costs are expected to increase by 10% per annum Other operating costs are expected to increase by 4% per year; The tax rate is 28% and payable in the year profits are made: The company is financed by 75% equity and 25% debt with market values of R75m and R25m respectively. The company has an equity beta of 1.2. The rate on Treasury bills is 5% and considered to have no risk. The market risk premium is 7,5%. The company's after-tax cost of debt is 6% The following assumptions were made in preparing the financial information Profits are similar to cash flows for the purposes of this project evaluation: All receipts and payments arise at the end of the year to which they relate, except for the project's initial outlay of R30m which is to be paid ie immediately and Other operating costs figures have already adjusted for tax capital allowances and noncash depreciation adjustments. The noncurrent asset bought for the project has no residual value. | 1 (20) Required: Given the information above. calculate the following: Profits for the periods Weighted average cost of capital Net present value of the proposed project Recommendation on the acceptance or rejection of the project with justifications Determine what the discount rate would be the net present value is to approximately equate zero (13) Iv v (10) State any assumptions you make. Your assumptions must make sense given the requirements of the questions Round off rand amounts to the nearest rand. The discount factor should be rounded to three decimal places. Total Marks: 100
