GrandInteriors Ltd is a Mauritian company which specializes in the manufacturing of frameless glass doors. The...

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GrandInteriors Ltd is a Mauritian company which specializes in the manufacturing of frameless glass doors. The company is now considering to expand the business by producing floating glass staircases as well. To gauge the demand of floating glass staircases, GrandInteriors Ltd has paid Rs 50 000 to QuickResearch Ltd to conduct the research. QuickResearch Ltd found that demand was high. The CEO of GrandInteriors Ltd will need new machinery worth Rs 8 million to produce the floating glass staircases. An initial net working capital investment of Rs 700 000 will also be required when the company purchases the equipment. The new machinery has a useful life of 10 years and a salvage value of Rs 0. The financial analyst of the company has predicted that the revenue for the first year of this project will be Rs 5 million and that this is expected to increase at a rate of 5 % per year. Moreover, the analyst believes that the manufacturing costs will amount to Rs 3 million in the first year and to increase by 4 % every year. The market value of the equipment is predicted to be at Rs 2.2 million in 5 years' time. Moreover, Grand Interiors Ltd also has to pay a rent of Rs 400 000 every year for the building where they will manufacture the floating glass staircases. a) b) Assume that the project's economic life will be 5 years, the tax rate of Grand Interiors Ltd. is 20% and its cost of capital is 15%. By first finding the initial investment outlay, operating after tax cash flows for the next 6 years and the terminal year after tax non operating cash flow, determine whether GrandInteriors Ltd. to go ahead with the project or not? The CEO of GrandInteriors Ltd wants to know if the decision to accept the project or not will be affected if he plans to raise the capital through debt. Critically assess the impact this would have on the net present value of the project. GrandInteriors Ltd is a Mauritian company which specializes in the manufacturing of frameless glass doors. The company is now considering to expand the business by producing floating glass staircases as well. To gauge the demand of floating glass staircases, GrandInteriors Ltd has paid Rs 50 000 to QuickResearch Ltd to conduct the research. QuickResearch Ltd found that demand was high. The CEO of GrandInteriors Ltd will need new machinery worth Rs 8 million to produce the floating glass staircases. An initial net working capital investment of Rs 700 000 will also be required when the company purchases the equipment. The new machinery has a useful life of 10 years and a salvage value of Rs 0. The financial analyst of the company has predicted that the revenue for the first year of this project will be Rs 5 million and that this is expected to increase at a rate of 5 % per year. Moreover, the analyst believes that the manufacturing costs will amount to Rs 3 million in the first year and to increase by 4 % every year. The market value of the equipment is predicted to be at Rs 2.2 million in 5 years' time. Moreover, Grand Interiors Ltd also has to pay a rent of Rs 400 000 every year for the building where they will manufacture the floating glass staircases. a) b) Assume that the project's economic life will be 5 years, the tax rate of Grand Interiors Ltd. is 20% and its cost of capital is 15%. By first finding the initial investment outlay, operating after tax cash flows for the next 6 years and the terminal year after tax non operating cash flow, determine whether GrandInteriors Ltd. to go ahead with the project or not? The CEO of GrandInteriors Ltd wants to know if the decision to accept the project or not will be affected if he plans to raise the capital through debt. Critically assess the impact this would have on the net present value of the project.

Answer rating: 100% (QA)

Determining if GrandInteriors Ltd should pursue the project 1 Calculate the Initial Investment Outlay Research costRs 50000 Machinery costRs 8000000 W... View the full answer