Abeer is a financial manager of a company contemplating two projects and its initial investment for both the projects are 45000 BD and the expected pay abck period from the first project will be 3 yrs and the expected payback period from the second project will be 5 years which project Abeer will recommend

Abeer is a financial manager of a company contemplating two projects and its initial investment for both the projects are 45000 BD and the expected pay abck period from the first project will be 3 yrs and the expected payback period from the second project will be 5 years which project Abeer will recommend

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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Assume that are the financial manager of a company, which is considering a potential project with a new product that is expected to sell for an average price of $22 per unit and the company expects it can sell 350 000 unit per year at this price for a period of 4 years. Launching this project will require purchase of a $2 000 000 equipment that has residual value in four years of $200 000 and adding $ 600 000 in working capital which isexpected to be fully retrieved at the end of the project. Other information is available below: Depreciation method: straight lineVariable cost per unit: $11Cash fixed costs per year $350 000Discount rate: 10%Tax Rate: 30% Do an analysis with cash flows of the project to determine the sensitivity of the project NPVwith the following changes in the value drivers and provide your results in (a) relevant tables: Unit sales decrease by 10%Price per unit decreases by 10%Variable cost per unit increases 10%Cash fixed cost per year increases by 10%
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show clearly the calculations for the pay back period for each project
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