a) A financial analyst for a manufacturer of BMV spare part is considering using its new engine. The production of the engine can be used over the 4 years, with zero salvage value at the end of year 4. The project's initial investment is RM60,000 which depreciates under straight-line method and its discount rate is 10 percent. The firm's corporate tax rate is 40 percent. Items Expected 500 Pessimistic 200 Optimistic 800 Unit sales (unit) Price/unit (RM) Variable cost/unit (RM) Fixed costs/annum (RM) 75 65 100 50 2000 60 30 3000 1000 Given the above information on the results of launching the new engine, you are required to compute:
a) A financial analyst for a manufacturer of BMV spare part is considering using its new engine. The production of the engine can be used over the 4 years, with zero salvage value at the end of year 4. The project's initial investment is RM60,000 which depreciates under straight-line method and its discount rate is 10 percent. The firm's corporate tax rate is 40 percent. Items Expected 500 Pessimistic 200 Optimistic 800 Unit sales (unit) Price/unit (RM) Variable cost/unit (RM) Fixed costs/annum (RM) 75 65 100 50 2000 60 30 3000 1000 Given the above information on the results of launching the new engine, you are required to compute:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION 2
a) A financial analyst for a manufacturer of BMV spare part is considering using its new
engine. The production of the engine can be used over the 4 years, with zero salvage
value at the end of year 4. The project's initial investment is RM60,000 which
depreciates under straight-line method and its discount rate is 10 percent. The firm's
corporate tax rate is 40 percent.
Optimistic
800
Items
Expected
500
Pessimistic
200
Unit sales (unit)
Price/unit (RM)
Variable cost/unit (RM)
Fixed costs/annum (RM)
75
65
100
50
2000
60
3000
30
1000
Given the above information on the results of launching the new engine, you are required
to compute:
iii) Evaluate the sensitivity of your base case operating cash flow (OCF) if the fixed cost
increases as upper bound's fixed costs and interpret the changes in the figure.
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