odawo
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Maboko ltd manufactures a component known as ‘fix it’ which is used in the manufacture of locally assembled desktop computer. While the current production capacity is one million units of fix it, the demand for the computer is expected to be as follows;















Year
1
2
3
4
Demand (Units)
1.4M
1.5M
1.6M
1.7M


The company is planning to acquire an additional machine at a cost of 8M which will have a useful life of 4 years and a maximum output of 600,000 units. The Scrap value after four years will be Ksh.300,000. The current selling price of fix it is Ksh. 80 per unit and the variable cost is Ksh. 50 per unit.
Other variable costs of production is Ksh. 19, fixed cost of production associated with the new machine will be Ksh 2.4M per year in each subsequent year of production increasing by ksh 200,000 per year in each subsequent year of operation.
Mavoko pays tax one year in arrears at an annual rate of 30% and can claim capital allowance 25% reducing balance basis. A balancing allowance is claimed in the final year of operation.
The cost of equity for Mavoko ltd is 10% while it pays an interest of 8.6% on its debts. Its long-term finance is made up of up to 80% equity and 20% debt.
Required.
Calculate the Net Present Value for this Project and advice the management of mavoko whether this project is financially viable.
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TSR Learn Together
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Puddles the Monkey
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Just moved this to Study Help for you as someone should be able you here
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forum007
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Find a tutor who is good in operation management who can help you.
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Stonebridge
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I think this would be better placed in Accounting and Finance. Or maybe Business and Management.
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MahmoodReza
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This is a typical financial mgt question. Steps (1) calculate the net cash flow pw over the duration of the projects life (when cash flows occur) - note cap allowances * Rate of tax = tax cash inflow; (2) convert cash flows into present values - * by WACC (3) add up PVs - +ve = accept, _=-ve = reject
Take care with timings


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Puddles the Monkey
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(Original post by Stonebridge)
I think this would be better placed in Accounting and Finance. Or maybe Business and Management.
Thanks
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MahmoodReza
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I suppose it depends on how you distinguish between Accounting and Finance and Business and Management - students studying accounting would tackle this topic
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mary usaji
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someone to help me please
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MahmoodReza
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Help with what Mary?


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