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Financial Management Assignment Questions & Answers in Abu Dhabi
Assignment Details:
Words: 700
ASSIGNMENT TASK: 4
Answer the following questions:
Bonsall Plc are a manufacturing company who produce components for high performance motorcycles. The product research team have been working on a new lightweight handlebar which they are now proposing to launch. The production and sales teams have supplied the following data to you- Bonsall’s Finance Manager.
| Year | Sales £’s | Fixed costs £’s | Variable costs£’s | Scrap proceeds£’s |
| Yr1 | 250,000 | 120,000 | 125,000 | |
| Yr2 | 305,000 | 125,000 | 152,500 | |
| Yr3 | 375,000 | 130,000 | 187,500 | |
| Yr4 | 475,000 | 135,000 | 237,500 | |
| Yr5 | 400,000 | 140,000 | 200,000 | |
| Yr6 | 0 | 0 | 0 | 5000 |
A new machine will be required to produce the handlebar at a cost of £150,000 payable immediately.
After 5 years the sales team forecast that the product will become obsolete and hence the handlebar will be withdrawn from sale. At this point the original machine will be sold for an expected scrap value of £5,000
Bonsall use a discount rate of 10% to appraise new investments. For an investment to be authorised it must meet or exceed the following targets:
- NPV- positive at 10% discount rate 2. IRR- 15%
- Undiscounted Payback- 3yrs or less
Required
Using the information above for the new project calculate:
- The undiscounted payback
- The Net Present Value and
- The Internal Rate of Return
Considering your answers state whether the project is acceptable.
