Reference no: EM133163658

Question - i) Mikasa Technology is considering whether to construct a new robotic production facility. The cost of this new facility is RM600,000 and it will have a six-year life with annual depreciation expense of RM100,000 and no salvage value. Expected annual sales from the new facility are 2,000 units with a price of RM1,000 per unit. Variable production costs are RM600 per unit, and cash fixed expenses are RM80,000 per year.

Required -

a) Calculate the accounting and the cash-break even units of production.

b) Will the plant make a profit based on its current expected level of operation?

ii) The target capital structure for Mikasa Technology is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. The cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm's tax rate is 35 percent. Calculate Mikasa Technology Weighted Average Cost of Capital (WACC)?

iii) Last year, Mikasa Technology had sales of RM500,000, fixed costs of RMIOO,OOO, and net operating income of RM30,000.

a) If sales increase by 20 percent, by how much will the firm's net operating income increase?

b) What would happen to the firm's net operating income if sales decrease by 20 percent?