Butcher Butcher is considering whether to invest in a new product, the Zam. Details of the Zam are as follows:   £ £ Selling price   22.00 Direct labour 5.00   Material 4.50   Variable overheads 2.50       12.00 Contribution   10.00   The company expects to sell 10,000 each year for 5 years and to incur additional fixed costs of £13,000 pa.  It has a cost of capital of 15%. The product would require the purchase of a machine for £300,000, which would be sold at the end of the project for £50,000. Required: Calculate the NPV based on the estimates above. Calculate the sensitivity of the decision to changes in the sales price, the material cost per unit, the sales volume and the disposal value of the machine.

You have an option of either buying a new machine for R2 million or employing 4 people to do the same job at the annual wage of R100,000 per person per year. Assume the following:• Equipment maintenance is 2% of the capital cost per year, the discount rate, equivalent to your working average cost of capital (WACC), is 16% and the project duration is 10 years• Salaries are paid at the end of the year, as from the end of year one.Calculate the following:a. The Annual Worth (AW) of both optionsb. Which option will be better for you? Why?c. Do a sensitivity analysis showing the variation in the AW of both options (separately) with ±25% changes in WACC, capital cost (option 1 only) and number of employees (option 2 only). Draw two separate graphs showing the relationships between the variables.d. Assume that wages are rising; at what salary per employee is the two options equivalent?e. Now assume that WACC is falling; at what value of WACC are the two scenarios equivalent (use base case…

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.

The selling of a product has been set at $300 per unit , and at that price the company expects to sell 1,000 units per year. The company requires a return of 20% p.a . On its investment of $ 1,250,000 in the product . What is the target cost per unit ?