(a) Kiwk Berhad projects unit sales for a new fitness equipment as follows: Year 1 2 3 Unit Sales 4,200 3,500 4,000 The estimated selling price of the fitness equipment is RM1,200 per unit. The variable costs are RM800 per unit while the fixed costs are RM500,000 per year. The project requires an initial investment of RM650,000 in assets, and it will be depreciated using the reducing balance method of 40% per year. In Year 3, these assets can be sold for 20 percent of their acquisition cost. The company will also incur repair and maintenance costs of RM100,000 per year for these assets. Production of the fitness equipment will require investment in net working capital of RM130,000. However, only RM30,000 of the net working capital will be recovered when the project ends. The tax rate is 25 percent, and the required rate of retum is 12 percent. Required: (1) ' Compute the net cash flows of this project for Year 0 to Year 3. (i) Calculate the net present value for this project. (iii) Should Kiwk Berhad invest in this project? Why?

(a) Kiwk Berhad projects unit sales for a new fitness equipment as follows: Year 1 2 3 Unit Sales 4,200 3,500 4,000 The estimated selling price of the fitness equipment is RM1,200 per unit. The variable costs are RM800 per unit while the fixed costs are RM500,000 per year. The project requires an initial investment of RM650,000 in assets, and it will be depreciated using the reducing balance method of 40% per year. In Year 3, these assets can be sold for 20 percent of their acquisition cost. The company will also incur repair and maintenance costs of RM100,000 per year for these assets. Production of the fitness equipment will require investment in net working capital of RM130,000. However, only RM30,000 of the net working capital will be recovered when the project ends. The tax rate is 25 percent, and the required rate of retum is 12 percent. Required: (1) ' Compute the net cash flows of this project for Year 0 to Year 3. (i) Calculate the net present value for this project. (iii) Should Kiwk Berhad invest in this project? Why?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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