a. Mr. Yap is the financial manager at Akujaya Berhad, and as a financial manager he is responsible to grow the company wealth. Miss Peng, the business development manager, came to see Mr. Yap with a proposal for a project in Penang. The project's name is Project Golden Hope. She asks Mr. Yap to analyse the feasibility of the project as she has all the information on the project as follows: Initial investment RM100,000 Sales forecast for the next 6 years 1,000 units per year Selling price Labor cost Material cost RM50 per unit RM8 per unit RM4 per unit The fixed costs are RM3,000 per annum (relevant) and this project will cause an increase of RM15,000 in additional working capital, all of which will be recovered at the end of the sixth year. The cost of capital for the 6-year projected project is 16%. Using the above information, you are required to answer the following questions. i. Prepare the Cash Flows Analysis clearly showing the Net Present Value (NPV) for this project. Should Mr. Yap accept the project? ii. Based on the above NPV, perform the sensitivity analysis on the selling price, labor cost, material cost and fixed cost. iii. Based on your findings in part (ii), explain which variables would have a great impact on Project Golden Hope.
a. Mr. Yap is the financial manager at Akujaya Berhad, and as a financial manager he is responsible to grow the company wealth. Miss Peng, the business development manager, came to see Mr. Yap with a proposal for a project in Penang. The project's name is Project Golden Hope. She asks Mr. Yap to analyse the feasibility of the project as she has all the information on the project as follows: Initial investment RM100,000 Sales forecast for the next 6 years 1,000 units per year Selling price Labor cost Material cost RM50 per unit RM8 per unit RM4 per unit The fixed costs are RM3,000 per annum (relevant) and this project will cause an increase of RM15,000 in additional working capital, all of which will be recovered at the end of the sixth year. The cost of capital for the 6-year projected project is 16%. Using the above information, you are required to answer the following questions. i. Prepare the Cash Flows Analysis clearly showing the Net Present Value (NPV) for this project. Should Mr. Yap accept the project? ii. Based on the above NPV, perform the sensitivity analysis on the selling price, labor cost, material cost and fixed cost. iii. Based on your findings in part (ii), explain which variables would have a great impact on Project Golden Hope.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:a. Mr. Yap is the financial manager at Akujaya Berhad, and as a financial manager he is
responsible to grow the company wealth. Miss Peng, the business development manager,
came to see Mr. Yap with a proposal for a project in Penang. The project's name is Project
Golden Hope. She asks Mr. Yap to analyse the feasibility of the project as she has all the
information on the project as follows:
Initial investment
RM100,000
Sales forecast for the next 6 years 1,000 units per year
Selling price
Labor cost
Material cost
RM50 per unit
RM8 per unit
RM4 per unit
The fixed costs are RM3,000 per annum (relevant) and this project will cause an increase
of RM15,000 in additional working capital, all of which will be recovered at the end of the
sixth year.
The cost of capital for the 6-year projected project is 16%.
Using the above information, you are required to answer the following questions.
i.
Prepare the Cash Flows Analysis clearly showing the Net Present Value (NPV) for this
project. Should Mr. Yap accept the project?
ii. Based on the above NPV, perform the sensitivity analysis on the selling price, labor
cost, material cost and fixed cost.
iii. Based on your findings in part (ii), explain which variables would have a great impact
on Project Golden Hope.
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