At their last quarterly meeting, the management of Noble Agro Processing & Manufacturing Company, a Public Limited Liability Company incorporated in 2018 to produce assorted Agriculture implements, and processing of Agric aw materials into semi-finished products discussed the future prospects of the Company after the Covid 19 Economic down turn. This was particularly with regards to their plans to extend their sales beyond the frontiers of Ghana and to strive hard to capture at least 20% of the total market share of the industry within the East African sub region by the year 2025. To successfully carry out this aggressive mission, there was the need for inject of fresh capital which management agreed as follows: 1. To issue 400,000 Equity Shares of no par Value at the price of GH¢1.00 per Share 2. 10% Debenture Loan to the tune of GH¢600,000.00 On the basis of the available capital anticipated, management has come out with two possible strategies to enter the East African Market. However, only one of the Strategies can be implemented due to the huge initial capital requirement for the two strategic options. The options are as follows: a. To purchase an already existing Plant in Addis Ababa at a cost of Gh¢1,000,000.00 b. Establish a new Plant in Kenya a total cost of Gh¢880,000.00 Below is the Summary of information elating to each of the two Strategic Options: Plant KENYA ADDIS ABABA Expected Life 5 years 5 years Expected Cash Inflows: GH¢ GH¢ Year 1 320,000.00 400,000.00 Year 2 280,000.00 260,000.00 Year 3 260,000.00 220,000.00 Year 4 240,000.00 200,000.00 Yea 220,000.00 200,000.00 Estimated Scrapped 160,000.00 100,000.00 Value at the end of year 5 The fresh Equity shares has the Cost Equity 15 % The company's estimated Weighted Average Cost of capital (WACC) is 12% As a Financial business analyst of your firm, you are required to Calculate: а) The Payback Period for Each Option. b) Profitability Index c) Net Present Value d) The Internal Rate of Returns (IRR) for the project with higher NPV.
At their last quarterly meeting, the management of Noble Agro Processing & Manufacturing Company, a Public Limited Liability Company incorporated in 2018 to produce assorted Agriculture implements, and processing of Agric aw materials into semi-finished products discussed the future prospects of the Company after the Covid 19 Economic down turn. This was particularly with regards to their plans to extend their sales beyond the frontiers of Ghana and to strive hard to capture at least 20% of the total market share of the industry within the East African sub region by the year 2025. To successfully carry out this aggressive mission, there was the need for inject of fresh capital which management agreed as follows: 1. To issue 400,000 Equity Shares of no par Value at the price of GH¢1.00 per Share 2. 10% Debenture Loan to the tune of GH¢600,000.00 On the basis of the available capital anticipated, management has come out with two possible strategies to enter the East African Market. However, only one of the Strategies can be implemented due to the huge initial capital requirement for the two strategic options. The options are as follows: a. To purchase an already existing Plant in Addis Ababa at a cost of Gh¢1,000,000.00 b. Establish a new Plant in Kenya a total cost of Gh¢880,000.00 Below is the Summary of information elating to each of the two Strategic Options: Plant KENYA ADDIS ABABA Expected Life 5 years 5 years Expected Cash Inflows: GH¢ GH¢ Year 1 320,000.00 400,000.00 Year 2 280,000.00 260,000.00 Year 3 260,000.00 220,000.00 Year 4 240,000.00 200,000.00 Yea 220,000.00 200,000.00 Estimated Scrapped 160,000.00 100,000.00 Value at the end of year 5 The fresh Equity shares has the Cost Equity 15 % The company's estimated Weighted Average Cost of capital (WACC) is 12% As a Financial business analyst of your firm, you are required to Calculate: а) The Payback Period for Each Option. b) Profitability Index c) Net Present Value d) The Internal Rate of Returns (IRR) for the project with higher NPV.
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:At their last quarterly meeting, the management of Noble Agro Processing & Manufacturing
Company, a Public Limited Liability Company incorporated in 2018 to produce assorted
Agriculture implements, and processing of Agric aw materials into semi-finished products
discussed the future prospects of the Company after the Covid 19 Economic down turn. This was
particularly with regards to their plans to extend their sales beyond the frontiers of Ghana and to
strive hard to capture at least 20% of the total market share of the industry within the East
African sub region by the
year
2025.
To successfully carry out this aggressive mission, there was the need for inject of fresh capital
which management agreed as follows:
1. To issue 400,000 Equity Shares of no par Value at the price of GH¢1.00 per Share
2. 10% Debenture Loan to the tune of GH¢600,000.00
On the basis of the available capital anticipated, management has come out with two possible
strategies to enter the East African Market. However, only one of the Strategies can be
implemented due to the huge initial capital requirement for the two strategic options.
The options are as follows:
a. To purchase an already existing Plant in Addis Ababa at a cost of Gh¢1,000,000.00
b. Establish a new Plant in Kenya a total cost of Gh¢880,000.00
Below is the Summary of information elating to each of the two Strategic Options:
Plant
ΚΕΝΥΑ
ADDIS ABABA
Expected Life
5 years
years
Expected Cash
Inflows:
GH¢
GH¢
Year 1
320,000.00
400,000.00
Year 2
280,000.00
260,000.00
Year 3
260,000.00
220,000.00
Year 4
240,000.00
200,000.00
Year 5
220,000.00
200,000.00
Estimated Scrapped
160,000.00
100,000.00
Value at the end of
year 5
The fresh Equity shares has the Cost Equity 15 %
The company's estimated Weighted Average Cost of capital (WACC) is 12%
As a Financial business analyst of your firm, you are required to Calculate:
а)
The Payback Period for Each Option.
b)
Profitability Index
c)
Net Present Value
d)
The Internal Rate of Returns (IRR) for the project with higher NPV.
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