Reference no: EM132825059

Question - K-Line Corporation is evaluating a project that costs RM924,000.00, with a six-year life and no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per annum. Price per unit is RM40.00, variable cost per unit is RM20.00 and fixed costs are RM800,000.00 per year. The quantity sold need to be adjusted and it is not off by more than 5,000 units in either direction. Meanwhile other cash flow components like unit price and variable cost per unit also need to assign such bounds of 10 and 5 percent respectively. The corporate tax rate for the company is 24 percent and the appropriate return rate is 15 percent.

REQUIRED -

i. Calculate the upper bounds and lower bounds for this projection.

ii. Determine the best case and worst case NPV of this projection.

iii. Calculate the accounting break-even based on base case for this projection.

iv. Determine the degree of operating leverage (DOL) at accounting break-even and identify the new OCF if unit sales increase by 10 percent.

b. Based on the company you selected for your group assignment, discuss two (2) possible financial risks related to the nature of the business of the company. Give appropriate examples.