What is the project initial outlay

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Reference no: EM133433712

Question: Soal - 4 Kencana Wangi Corp. wants to make a new project that is making a brand-new product with the total of equipment investment as of $160.000.000 and because of its nature of the equipment, the firm uses the straight line depreciation method. The economic life of the project is 8 (Eight) years. At the end of the year five, the firm will stop the project and the equipment can be sold at $15,000,000. The consulting fee for this project amount of $2,000,000. The sales unit of the new product are as follows: year 1, 250,000 units; year 2, 500,000 units; year 3; 600,000 units; year 4, 800,000 units; and year 5, 1,000,000 units. The sales price per unit are as follows: year 1 $500, year 2 until year 5, increase 28% each year. Meanwhile its variable cost per unit are as follows: year 1 $400, year 2 until year 5, increase 30% each year. The firm requires $8,000,000 in net working capital to start the project. The total fixed costs are $2,000,000 per year. Corporate tax is 20% and the shareholders of Kencana Wangi put 18% as their required rate of return for this project.

Required:

a. What is the project's initial outlay?

b. What are the project's annual free cash flows?

c. What is the terminal cash flow of the project?

d. Calculate the NPV, IRR, Payback Period and Profitability Index of this Project

Reference no: EM133433712

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