Calculate the NPV for ACI Exclusive Fabrics

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Reference no: EM132943188

Question - ACI Group is evaluating the proposal of a new RMG factory called ACI Exclusive Fabrics. The project will have a life cycle of six years. The Group has forecasted a strong sales growth in RMG business and therefore, wants to evaluate a new project plan. ACI Group is renting a premise of 50,000 Square feet in Savar and ACI Exclusive Fabrics is planning to use 10,000 Square feet from this facility. The rest of the premise is currently being used by another RMG factory of ACI Group called ACI Fabrics. The ACI Fabrics has already started its production. Using the new machine, ACI Fabrics is selling 50,000 cloth per year at $4 per cloth. Total capital cost for ACI Exclusive Fabrics is USD 80,000 and is depreciated using the straight-line method over six years to a zero-salvage value. The cash flow from asset for ACI Exclusive Fabrics is USD 35000 in the first year, followed by USD 30000 in the second year and USD 25000 in the third year. The annual total rent of 50,000 Square feet premise is USD 35,000. The cash flow from asset for ACI Exclusive Fabrics will be USD 20,000 in the fourth year and USD 15000 in the fifth year. ACI Exclusive Fabrics will need to annually pay USD 6000 as staff's festival bonus. Assume, initially ACI Exclusive Fabrics will require USD 5,000 in working capital for this project. However, after the project they will not receive any amount from the working capital. The monthly salary expense will be USD 3500, whereas annual utility and other expense will be USD 3,000. The required rate of return ACI Exclusive Fabrics is 10% and for ACI Fabrics is 14 per cent. The tax rate is zero per cent and cash flow from asset in the final year is USD 10,000. Besides, there are no additional cash inflows and outflows from this project. Calculate the NPV for ACI Exclusive Fabrics. Show detailed calculation.

Reference no: EM132943188

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