Acme Food Co. Ltd. is considering the introduction of a new product Smackers. The firm has gathered and provided your group the following information relevant to the project: Initial fixed capital outlay: $135,000 Initial working capital outlay: $10,800 Life of the project: 8 years Capital recovery at project end: fixed $20,000; working $8,200 Sales units forecast: 70,000 units in year one, growing at 7.00 % per annum thereafter Unit selling price: $3.75 Unit production cost: $1.78 Annual fixed overhead cost: $45,000 Annual tax rate of depreciation claimable: 20% per annum Annual income tax rate: 35% Required rate of return: 9 % per annum. Acme proposes to use $50,000 of its own funds which can provide an alternative investment return of 7% and take a Current Account loan for the rest of the needed capital outlay at 11% per annum. Surplus cash flows can be invested at 6% or used to redeem the loan. Using the data provided: (a) Calculate an NPV for the project under the given base-case scenario. (b) Perform sensitivity analyses on the following variables: initial fixed capital outlay, unit selling price, annual sales growth rate and unit production cost. (c) Using the Net Cash Flows from your NPV calculations, prepare a comprehensive Financial plan for the investment (VoFI table)
Acme Food Co. Ltd. is considering the introduction of a new product Smackers. The firm has
gathered and provided your group the following information relevant to the project:
Initial fixed capital outlay: $135,000
Initial working capital outlay: $10,800
Life of the project: 8 years
Capital recovery at project end: fixed $20,000; working $8,200
Sales units
Unit selling price: $3.75
Unit production cost: $1.78
Annual fixed overhead cost: $45,000
Annual tax rate of
Annual income tax rate: 35%
Required
Acme proposes to use $50,000 of its own funds which can provide an alternative investment return of
7% and take a Current Account loan for the rest of the needed capital outlay at 11% per annum.
Surplus cash flows can be invested at 6% or used to redeem the loan.
Using the data provided:
(a) Calculate an NPV for the project under the given base-case scenario.
(b) Perform sensitivity analyses on the following variables: initial fixed capital outlay, unit
selling price, annual sales growth rate and unit production cost.
(c) Using the Net Cash Flows from your NPV calculations, prepare a comprehensive
Financial plan for the investment (VoFI table).
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