• Charge depreciation using the straight-line method • Salvage value for equipment is GH¢2,000,000 • CPC falls within the 25% tax bracket An initial working capital investment of GH¢ 10,000,000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project's life • The introduction of this new vaccine is expected to lead to 10,000 units per annum drop in sales of vaccines for other types of corona virus by. The selling price per unit of existing products is GH¢ 100 while the variable cost is GH¢70. This has no tax implications for the new vaccine. The project will be financed with debt and equity Require d: a. Evaluate the project using the NPV and Profitability index and recommend whether CPC shoukd go ahead with the production of the vaccine. b. Discuss three (3) qualitative factors that the Management of CPC might have to consider and how these factors are expected to influence the decision of Management with regards to the production of the vaccine. c. Under what circumstances will you prefer profitability index to NPV as project evaluation techniques.
• Charge depreciation using the straight-line method • Salvage value for equipment is GH¢2,000,000 • CPC falls within the 25% tax bracket An initial working capital investment of GH¢ 10,000,000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project's life • The introduction of this new vaccine is expected to lead to 10,000 units per annum drop in sales of vaccines for other types of corona virus by. The selling price per unit of existing products is GH¢ 100 while the variable cost is GH¢70. This has no tax implications for the new vaccine. The project will be financed with debt and equity Require d: a. Evaluate the project using the NPV and Profitability index and recommend whether CPC shoukd go ahead with the production of the vaccine. b. Discuss three (3) qualitative factors that the Management of CPC might have to consider and how these factors are expected to influence the decision of Management with regards to the production of the vaccine. c. Under what circumstances will you prefer profitability index to NPV as project evaluation techniques.
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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100%
Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company
is considering introducing a new vaccine unto the market to help fight the virus. This will require
the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for
production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and
install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could
be manufactured in a building owned by the firm and located in East Legon. This vacant building
and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the
Transcribed Image Text:• Charge depreciation using the straight-line method
• Salvage value for equipment is GH¢2,000,000
• CPC falls within the 25% tax bracket
An initial working capital investment of GH¢ 10,000,000 will be made. Subsequently,
net working capital at the end of each year will be equal to 10 percent of sales for that
year. In the final year of the project, net working capital will decline to zero as the
project is wound down. In other words, the investment in working capital is to be
completely recovered by the end of the project's life
• The introduction of this new vaccine is expected to lead to 10,000 units per annum drop
in sales of vaccines for other types of corona virus by. The selling price per unit of
existing products is GH¢ 100 while the variable cost is GH¢70. This has no tax
implications for the new vaccine.
The project will be financed with debt and equity
Require d:
a. Evaluate the project using the NPV and Profitability index and recommend whether CPC
shoukd go ahead with the production of the vaccine.
b. Discuss three (3) qualitative factors that the Management of CPC might have to consider and
how these factors are expected to influence the decision of Management with regards to the
production of the vaccine.
c. Under what circumstances will you prefer profitability index to NPV as project evaluation
techniques.
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