In: Economics
Imagine that you own (250,000$) and you want to invest it in your dream plan. estimate the initial cost and the annual cash flow details (operation and maintenance costs, raw material, salaries, overheads, profits …etc.).(draw the cash flow)
Note: you don’t need to consume the 250,000$, any cheaper investments are fine. Any larger investment is allowable under loan consideration or suitable explanation.
It’s like a mini feasibility study but you only have to calculate the rate of return
Note: put your solution in two printed pages.
show the used interest rate
ANSWER :
INVESTMENT IN PLANT 240000
USEFUL LIFE 4 YEARS
SALVAGE VALUE 0
DISCOUNTING RATE 10%
DEPRECIATION = INTITAL INVEST/ NO. OF YEARS
DEPRECIATION = 240000/4
DEPRECIATION = 60000
CASH INFLOW
PARTICULARS 1ST YEAR 2ND YEAR 3RD YEAR 4TH YEAR
NO. OF UNITS SOLD 5000 5200 5500 5800
SALES PRICE PER UNIT 100 100 100 100
SALES REVENUE 500000 520000 550000 580000
RAW MATERIAL @50 250000 260000 275000 290000
SALARIES 50000 52000 55000 58000
VARIABLE OVERHEAD 50000 52000 55000 58000
10RS PER UNIT
FIXED COST 50000 50000 50000 50000
LESS DEPN 60000 60000 60000 60000
PROFIT 40000 46000 55000 64000
ADD DEPN 60000 60000 60000 60000
CASH FLOW 100000 106000 115000 124000
YEAR CASH FLOW DIS @10% DIS CASH FLOW
0 -240000 1.00 -240000.00
1 100000 0.91 90909.09
2 106000 0.83 87603.31
3 115000 0.75 86401.20
4 124000 0.68 84693.67
NPV 109607.27
RATE OF REUTNR = RETURN / INVESTMENT
RATE OF REUTNR = 109607/240000
RATE OF REUTNR = 45.67%