Aasim Corporation has an opportunity to invest in a machine to manufacture soft drinks for period of five years. The price of the machine is Tk. 500,000 and its economic life is eight years. The machine is expected to be sold at the end of project life (after five years) of the machine for tk. 140,000. The machine will be depreciated by the straight-line methods for eight years. The machine will produce 20,000 units of soft drinks each year. The selling price of each unit soft drink is tk. 20 and the production cost is tk. 7 per unit during the project life. The corporate Tax rate is 30% in each economic year. The company has already spent tk. 80,000 for the feasibility study of the project and initial working capital investment tk. 25000 recoverable at the end of the project. The company plans for 30% debt financing issuing 13%bond, and remaining will be equity financing. The company is listed in Chittagong Stock Exchange (CSE) and the outstanding shares of the company are trading at tk. 20 per share. The beta of the company is 1.5. The average return of CSE is 16% and risk free rate of return is 4%. The company holds the CAPM model. Requirement: (a) Calculate the cash flows of the project for the whole project life of five years (b) Calculate the NPV and evaluate the project based on the NPV.
Aasim Corporation has an opportunity to invest in a machine to manufacture soft drinks for period of five years. The price of the machine is Tk. 500,000 and its economic life is eight years. The machine is expected to be sold at the end of project life (after five years) of the machine for tk. 140,000. The machine will be depreciated by the straight-line methods for eight years. The machine will produce 20,000 units of soft drinks each year. The selling price of each unit soft drink is tk. 20 and the production cost is tk. 7 per unit during the project life. The corporate Tax rate is 30% in each economic year. The company has already spent tk. 80,000 for the feasibility study of the project and initial working capital investment tk. 25000 recoverable at the end of the project. The company plans for 30% debt financing issuing 13%bond, and remaining will be equity financing. The company is listed in Chittagong Stock Exchange (CSE) and the outstanding shares of the company are trading at tk. 20 per share. The beta of the company is 1.5. The average return of CSE is 16% and risk free rate of return is 4%. The company holds the
(a) Calculate the cash flows of the project for the whole project life of five years
(b) Calculate the
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