HBL Corporation is a U.S. based mobile phone manufacturer. The Company is planning to establish its first
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Question:
The project is expected to produce and sell 5500 units of mobile phones in the first year, and the selling price per unit in the first year is estimated to be BND 1050. The market demand and the prices are expected to grow from the second year at 10% p.a. and 5% p.a. respectively. The variable cost is expected to be 50% p.a. of the turnover. There is an initial marketing research expenditure of BND 100,000 that is considered as sunk cost. HBL has to pay another BND 1 million as rent and leasing expenses each year for the next four years. HBL has also estimated an increase in working capital requirement by BND 1 million for the project. Note that similar projects took 4 years to recover the initial investment.
Requirements:
(a) Based on the information on HBL Corporation:
(i) Estimate initial investment outlay, incremental operating cash flows, and the terminal
cash flows.
(ii) Draw the cash flow timeline.
(b) Do you think HBL Corporation should accept the project? If the required rate of return is 15% p.a.,
analyse the results using the following tools:
(i) Net Present Value,
(ii) Payback Period, and
(iii) Internal Rate of Return.
(c) Discuss your findings.
Related Book For
Global Marketing management
ISBN: 978-0470505748
5th edition
Authors: Masaaki Kotabe, Kristiaan Helsen
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