Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information: Details Year 1 Year 2 Year 3 Year 4 Year 5 R’000 R’000 R’000 R’000 R’000 Sales 36,750 54,023 61,586 69,770 70,451 Materials 5,885 9,075 11,979 14,714 14,495 Labour 11,770 18,150 23,958 30,746 28,989 Other variable overheads 525 662 752 851 957 Fixed overheads 5,250 5,513 5,788 6,078 6,381 Other operating costs 3,120 3,353 3,600 3,978 4,015 Additional information: The tax rate is 28% and is payablein the year profits are made; The company is financedby 75% equity and 25% debt, with market values of R75-million and R25-million respectively. The company has an equity beta of 1.2. The rate on South African Treasury bills is 5% and considered to have no risk. The market risk premium is 7.5%. The company’s after-tax cost of debt is 6%; Profits are similar to cash flowsfor the purposes of this project evaluation; and All receipts and payments arise at the end of the year to which they relate except for the project’s initial outlay of R30-million, which is paid at the beginning of the project (ie, immediately). a. calculate the Net present value of the proposed project and Discuss the advantages of the net present value technique over the payback period and internal rate of return techniques when capital budgeting
Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information: Details Year 1 Year 2 Year 3 Year 4 Year 5 R’000 R’000 R’000 R’000 R’000 Sales 36,750 54,023 61,586 69,770 70,451 Materials 5,885 9,075 11,979 14,714 14,495 Labour 11,770 18,150 23,958 30,746 28,989 Other variable overheads 525 662 752 851 957 Fixed overheads 5,250 5,513 5,788 6,078 6,381 Other operating costs 3,120 3,353 3,600 3,978 4,015 Additional information: The tax rate is 28% and is payablein the year profits are made; The company is financedby 75% equity and 25% debt, with market values of R75-million and R25-million respectively. The company has an equity beta of 1.2. The rate on South African Treasury bills is 5% and considered to have no risk. The market risk premium is 7.5%. The company’s after-tax cost of debt is 6%; Profits are similar to cash flowsfor the purposes of this project evaluation; and All receipts and payments arise at the end of the year to which they relate except for the project’s initial outlay of R30-million, which is paid at the beginning of the project (ie, immediately). a. calculate the Net present value of the proposed project and Discuss the advantages of the net present value technique over the payback period and internal rate of return techniques when capital budgeting
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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Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information:
| Details | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| R’000 | R’000 | R’000 | R’000 | R’000 | |
| Sales | 36,750 | 54,023 | 61,586 | 69,770 | 70,451 |
| Materials | 5,885 | 9,075 | 11,979 | 14,714 | 14,495 |
| Labour | 11,770 | 18,150 | 23,958 | 30,746 | 28,989 |
| Other variable overheads | 525 | 662 | 752 | 851 | 957 |
| Fixed overheads | 5,250 | 5,513 | 5,788 | 6,078 | 6,381 |
| Other operating costs | 3,120 | 3,353 | 3,600 | 3,978 | 4,015 |
Additional information:
- The tax rate is 28% and is payablein the year profits are made;
- The company is financedby 75% equity and 25% debt, with market values of R75-million and R25-million respectively. The company has an equity beta of 1.2. The rate on South African Treasury bills is 5% and considered to have no risk. The market risk premium is 7.5%. The company’s after-tax cost of debt is 6%;
- Profits are similar to cash flowsfor the purposes of this project evaluation; and
- All receipts and payments arise at the end of the year to which they relate except for the project’s initial outlay of R30-million, which is paid at the beginning of the project (ie, immediately).
a. calculate the
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