Acme Food Co. Ltd. is considering the introduction of a new product Smackers. The firm has...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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. 10 marks. (b) Perform sensitivity analyses on the following variables: initial fixed capital outlay, unit selling price, annual sales growth rate and unit production cost. 12 marks (c) Using the Net Cash Flows from your NPV calculations, prepare a comprehensive Financial plan for the investment (VoFI table). 10 marks. (d) Your analysis should be in the form of a report advising management of your analyses regarding the new product Smackers with appropriate recommendations. 8 marks 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. 10 marks. (b) Perform sensitivity analyses on the following variables: initial fixed capital outlay, unit selling price, annual sales growth rate and unit production cost. 12 marks (c) Using the Net Cash Flows from your NPV calculations, prepare a comprehensive Financial plan for the investment (VoFI table). 10 marks. (d) Your analysis should be in the form of a report advising management of your analyses regarding the new product Smackers with appropriate recommendations. 8 marks
Expert Answer:
Answer rating: 100% (QA)
Answer a Calculate an NPV for the project under the given basecase scenario 500001078 82001078 13500... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
Students also viewed these accounting questions
-
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual...
-
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual...
-
An automotive company is considering the introduction of a new model of sports car that will be available in two engine types: four cylinder and six cylinder. A sample of customers who were...
-
Be able to explain how changes in transportation impacted economic growth in the United States prior to WWI.
-
Explain how the cost of direct and indirect materials flows through the Raw Materials, Work in Process, and Manufacturing Overhead accounts.
-
In Problems 8596, simplify each expression. 4 2
-
Below are the comparative statements of financial position of Lunar Ltd. Required Prepare a statement of cash flows for the year ended 30 June 2025 in accordance with the direct method. Include any...
-
On January 1, 2010, the Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of...
-
Harris Fabrics computes its plantwide predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 33,000 direct labor-hours would be...
-
The chief accountant for Grandview Corporation provides you with the company's 2018 statement of cash flows and income statement. The accountant has asked for your help with some missing figures in...
-
Stylon Co., a women's clothing store, purchased $48,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Stylon returned merchandise with an Invoice amount of $7,500,...
-
Practising the phone skills you learned in this chapter, leave your instructor a professional voice mail message. Prepare a mini-agenda before you call. Introduce yourself. If necessary, spell your...
-
Greyt Dog Beds Ltd manufactures dog beds specifically designed for greyhounds and whippets. The company purchases all the required materials from external suppliers and designs and assembles the...
-
The Cloudlands Spa Resort has 100 residential villas to accommodate guests. The accountant for the resort has asked you, the marketing manager, to prepare a budget for expected relaxation treatment...
-
The purchasing officer for The Majestic Emporium has prepared a purchases budget for the financial year ending 31 March 2020, based on the following data. The cost of sales is 65% of sales, and the...
-
In teams of three to five, analyze a problem on your campus such as the following: insufficient parking on campus, unavailable classes, closed campus facilities for students taking evening or weekend...
-
I am missing an argument in the parameter list dont knwo how to fix it? ParserError: Line | 3 | LocalPost, | Missing argument in parameter list. PS C:\Users\student> Get-Net TCPConnection |...
-
An item of depreciable machinery was acquired on 1 July 2009 for $120,000 by cash It is expected to have a useful life of 10 years and zero salvage value On 1 July 2012, it was decided to revalue the...
-
An investment of $100,000 is required in an existing manufacturing concern, whose annual revenue is expected to be $40,000 for the next five years. Out of this revenue, the yearly expenditure on...
-
A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $120,000, and it will save an estimated 300,000 kilowatt-hours (kWh)...
-
Sergeant Jess Frugal has the problem of running out of money near the end of each month (he gets paid once a month). Near his army base there is a payday lender company, called Predatory Lenders,...
-
Dr Mosby owned a large house on a sizeable piece of land in Darwin. Dr Mosby was 92 years old and had become incapable of taking care of the large property. He wanted to move into a retirement...
-
Brumby Ltd recognises that the concept of 'market participants' is an important part of the measurement of fair value. It has determined that market participants are buyers and sellers in the...
-
Explain the concept of lower of cost and net realisable value for inventories.
Study smarter with the SolutionInn App