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- Maram & Company Case:Maram & Company are manufacturers of furniture. They are contemplating the introduction of a new line which will require investment of Rs. 20 million in plant and machinery, which would have to be incurred by the end of December 2016. Production, and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed by an increase of 30% each year for the next 2 years, and then decline by 20% each year for the next 2 years, after which the line will be discontinued. There is a fixed cost of Rs. 2 million each year and the variable cost of production comes to 60% of sales revenue. Depreciation is straight line over the 5 year period. The value of plant and machinery at the end of 5 years can be assumed to be zero. Maram will have to invest in working capital equal to 20% of sales revenue at the beginning of each year. You may assume that the entire working capital investment is recovered at the end of…Maram & Company are manufacturers of furniture. They are contemplating the introduction of a new line which will require investment of Rs. 20 million in plant and machinery, which would have to be incurred by the end of December 2016. Production, and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed by an increase of 30% each year for the next 2 years, and then decline by 20% each year for the next 2 years, after which the line will be discontinued. There is a fixed cost of Rs. 2 million each year and the variable cost of production comes to 60% of sales revenue. Depreciation is straight line over the 5 year period. The value of plant and machinery at the end of 5 years can be assumed to be zero. Maram will have to invest in working capital equal to 20% of sales revenue at the beginning of each year. You may assume that the entire working capital investment is recovered at…Maram & Company Case:Maram & Company are manufacturers of furniture. They are contemplating the introduction of a new line which will require investment of Rs. 20 million in plant and machinery, which would have to be incurred by the end of December 2016. Production, and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed by an increase of 30% each year for the next 2 years, and then decline by 20% each year for the next 2 years, after which the line will be discontinued. There is a fixed cost of Rs. 2 million each year and the variable cost of production comes to 60% of sales revenue. Depreciation is straight line over the 5 year period. The value of plant and machinery at the end of 5 years can be assumed to be zero. Maram will have to invest in working capital equal to 20% of sales revenue at the beginning of each year. You may assume that the entire working capital investment is recovered at the end of…
- Maram & Company Case:Maram & Company are manufacturers of furniture. They are contemplating the introduction of a new line which will require investment of Rs. 20 million in plant and machinery, which would have to be incurred by the end of December 2016. Production, and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed by an increase of 30% each year for the next 2 years, and then decline by 20% each year for the next 2 years, after which the line will be discontinued. There is a fixed cost of Rs. 2 million each year and the variable cost of production comes to 60% of sales revenue. Depreciation is straight line over the 5 year period. The value of plant and machinery at the end of 5 years can be assumed to be zero. Maram will have to invest in working capital equal to 20% of sales revenue at the beginning of each year. You may assume that the entire working capital investment is recovered at the end of…Maram & Company Case: Maram & Company are manufacturers of furniture. They are contemplating the introduction of a new line which will require investment of Rs. 20 million in plant and machinery, which would have to be incurred by the end of December 2016. Production, and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed by an increase of 30% each year for the next 2 years, and then decline by 20% each year for the next 2 years, after which the line will be discontinued. There is a fixed cost of Rs. 2 million each year and the variable cost of production comes to 60% of sales revenue. Depreciation is straight line over the 5 year period. The value of plant and machinery at the end of 5 years can be assumed to be zero. Maram will have to invest in working capital equal to 20% of sales revenue at the beginning of each year. You may assume that the entire working capital investment is recovered at the…Maram & Company Case:Maram & Company are manufacturers of furniture.They are contemplating the introduction of a new line which willrequire investment of Rs. 20 million in plant and machinery, whichwould have to be incurred by the end of December 2016. Production,and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed byan increase of 30% each year for the next 2 years, and then decline by20% each year for the next 2 years, after which the line will bediscontinued. There is a fixed cost of Rs. 2 million each year and the variable cost ofproduction comes to 60% of sales revenue.Depreciation is straight line over the 5 year period.The value of plant and machinery at the end of 5 years can be assumedto be zero. Maram will have to invest in working capital equal to 20% of salesrevenue at the beginning of each year.You may assume that the entire working capital investment isrecovered at the end of the…
- You are considering investing in a glove manufacturing plant for which you need to immediately pay RM10 million. You expect to produce and sell 10,000 gloves per year. Production commences after 12 months, i.e, at the end of year 1 (which is also the begining of Year 2). You expect production cost to be RM50 per glove. Selling price is estimated at RM100 per glove for the first three years of sales. You are not sure about the sales price after Year 3 because your exclusive patent right expired then. The plant facilities last for 8 years. Cost of capital is 8%. Compute the glove's sales price after Year 3. and this project's NPV Don't you think the price after year 3 is the same as the marginal cost, since at optimum level of output, marginal revenue=marginal cost?Maram & Company Case:Maram & Company are manufacturers of furniture.They are contemplating the introduction of a new line which willrequire investment of Rs. 20 million in plant and machinery, whichwould have to be incurred by the end of December 2016. Production,and the resultant revenue and costs will start immediately. In the first year, revenue is expected to be Rs. 10 million followed byan increase of 30% each year for the next 2 years, and then decline by20% each year for the next 2 years, after which the line will bediscontinued. There is a fixed cost of Rs. 2 million each year and the variable cost ofproduction comes to 60% of sales revenue.Depreciation is straight line over the 5 year period.The value of plant and machinery at the end of 5 years can be assumedto be zero. Maram will have to invest in working capital equal to 20% of salesrevenue at the beginning of each year.You may assume that the entire working capital investment isrecovered at the end of the…The directors of EMY plc are currently considering an investment in a new production machinery to replace an existing one. The new machinery would produce goods more efficiently, leading to increased sales volume. The investment required will be GH¢1,150,000 payable at the start of the project. The alternative course of action would be to continue using the existing machinery for a further five years, at the end of which time it would have to be replaced. The following forecasts of sales and production volumes have been made: Sales in units Year Using existing machinery Using new machinery GH¢ GH¢ 1 400,000 560,000 2 450,000 630,000 3 500,000 700,000 4 600,000 840,000 5 750,000 1,050,000 Production in units Year Using existing machinery Using new machinery GH¢ GH¢ 1 420,000 564,000 2 435,000 637,000 3 505,000 695,000 4 610,000 840,000 5 730,000 1,044,000…
- The directors of Galle Traders are now considering replacing its production equipment with new equipment that will be fully operational from January 1, 2021. The new equipment: Has a cost of Rs. 12 million. Increases the fixed production cost (excluding depreciation) by 10% per annum and the fixed production cost for the current year is Rs 4 million. Reduces the variable production cost per unit by 20% and the current variable cost per unit is Rs 100. Has a life of five years, a residual value after five years of Rs. 2 million and is to be depreciated using straight line method. Other information: Unit selling price is Rs. 200 and the demand for the product is 50,000 units for the first year which will increase by 10,000 units for each year thereafter. Cost of capital for this type of investment is 10% per annum. Calculate the Net Present Value of the Project assuming the cost of capital is 10% Year 0 1 2 3…B) Pakar & Son Sdn Bhd is looking to invest in a new project, with a project life of 4 years. The project involves a new manufacturing equipment that makes inline skate wheels. The marketing department estimates a total sale of 6,000 units each year at a price of RM300 per unit. Variable cost is about 40% from the selling price. Fixed cost is estimated at RM450,000 per year. The new equipment will cost RM1,500,000. The machine will be depreciated to zero over its 6-year economic life using the straight-line method. At the end of year 4, the equipment can be sold at RM650,000. The project also requires an investment of RM525,000 in net working capital at the start and it will be recovered in full at the end of the project's life. The corporate tax rate is 35 percent. The required rate of return for the project is 25%. i) What is the initial cost of this project? ii) Determine the annual cash flow of this project from year 1 to year 4.Wemham-Miffin is considering launching a new line of septagonal-shaped paper. You have the following information: • Revenues due to the sale of the new product are expected to be $95 million annually. Of this, 77% will be by cash with the remainder sold on credit. Credit sales are expected to start being repaid after 2 years. • Total paper production costs will increase from the current level of $20 million annually to $51 million annually after the product launch. • Hyper-aggressive sales agent Dwight Schrute will be reassigned from other projects to sell the new product line. Customers of those other products will be relieved and sales will increase by $18 million annually. • The project will make use of an existing paper mill, built last year at a cost of $43 million. The mill is being depreciated using prime cost over a useful life of twenty-seven years. • However, due to this decision, machinery in the mill will need to be retrofit at a cost of $27 million at t=0. The retrofit…