Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%. (a) Estimate the accounting rate of return expected from his investment. (b) Using the net present value technique for project evaluation, advise Finozest solutions on whether they should undertake this project. (c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven rate for the project.
Finozest Solutions is considering setting up a facility to manufacture computers. The manufacturing facility will cost K15 million to build and will have the capacity to sell 50,000 computers a year. Each computer is expected to sell retail for K2,800, and the cost of making each computer is expected to be K1,400. The fixed costs amount to K150,000 per year are expected to be incurred. The business will run for five years, at which time you estimate the market value of the facility to be zero. The discount rate is estimated at 10%, and the tax rate is 40%.
(a) Estimate the accounting
(b) Using the
(c) After the release of the latest GDP projections for the country, you now estimate that at the end of 5 years, you could sell the facility for K5 million. Estimate the breakeven rate for the project.
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