Unga mtamu Company Ltd is a growing and highly profitable consumer goods firm. The firm is introducing a new breakfast cereal. The cost of the plant is estimated to be 25,000,000/=. The annual capacity of the plant is to manufacture 500,000 packets of 800 g each.

The price per set in the first year would be 140/= and the variable cost per packet will be 85. The fixed cost would be 15,000,000 per year which includes promotion expenditure of 7,500,000 in the first year? 

The promotion is to be carried out in the first year only. Written down depreciation for tax purposes is 25 per cent?

WC in the beginning of the year is expected to be 15% of sales. Inflation is expected to be 4.6%. The company expect that plant capacity utilization over 7 years will be as follows:

Year  1  2  3  4  5  6  7

Capacity  25  35  50  75  90  100  100

The terminal value of the project is estimated to be 2,500,000. Calculate NPV assuming a target real rate of return is 9%. The corporate tax rate 35%.

Answer rating: 100% (QA)

NP V 25 000 000 7 500 000 15 000 000 1 0 09 22 500 000 1 09 20 649 07 3 ... View the full answer