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Financial Management Assignment

Q1. Beef Limited is considering investing in a new meat packaging factory in Nanyuki town. The initial investment is \$7,360,000 with an expected useful economic life of 5 years and no scrap value. The sales volume is expected to be 1,120,000 packets per annum with a selling price of \$15 per packet. The variable costs are expected to be \$11 per packet and fixed costs excluding depreciation are \$1,628,000 per annum. The company uses the straight-line method of depreciation. The cost of capital is 15% while the marginal tax rate is 40%. Required:

(a) Calculate the firm’s Payback period, Net Present Value and Internal Rate of Return

(b) Calculate the NPV assuming that each of the variables (Initial investment, sales volume, selling price, and variable costs) vary adversely in isolation by 10%.Financial Management Assignment

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(c) Perform the break-even analysis for each of the variables in

(b) above and comment briefly on the vulnerability of each.

Q1. Beef Limited is considering investing in a new meat packaging factory in Nanyuki town. The initial investment is \$7,360,000 with an expected useful economic life of 5 years and no scrap value. The sales volume is expected to be 1,120,000 packets per annum with a selling price of \$15 per packet. The variable costs are expected to be \$11 per packet and fixed costs excluding depreciation are \$1,628,000 per annum. The company uses the straight-line method of depreciation. The cost of capital is 15% while the marginal tax rate is 40%. Required:

(a) Calculate the firm’s Payback period, Net Present Value and Internal Rate of Return

(b) Calculate the NPV assuming that each of the variables (Initial investment, sales volume, selling price, and variable costs) vary adversely in isolation by 10%.

(c) Perform the break-even analysis for each of the variables in

(b) above and comment briefly on the vulnerability of each.  Financial Management Assignment