JD Sdn Bhd has developed a new industrial detergent that can be used in motor vehicle garages.

It would cost RM 1,000,000.00 to buy the equipment necessary to manufacture

the blenders, and initially, it would require net operating working capital equal to 15%

of the 1st year sales amount. Net operating working capital will remain at the same rate. The

project would have a life of 5 years. If the project is undertaken,

it must be continued for the entire 5 years.

The firm believes it could sell 100,000 units per year

The detergents would sell for RM 12.00 per unit

After the first year, JD wants to increase the sales price by 3% annualy.

The company's fixed cost would be at RM 420,000.00 at year 1

and would also increase by 3% annually.

The variable cost is 5.00 per unit

and will increase at an inflation rate of 3% annually.

The equipment would be depreciated over a 5.00 year period, using the straight

line method. The annual depreciation will be calculated on a salvage value of the equipment

at the end of the project's life of RM 200,000.00

The company, however, estimated the machine can be sold as scrap for RM 250,000.00

The corporate tax rate is 25%

The cost of capital is 12%

a) Develop a spreadsheet model and use it to find the projects NPV, IRR, and payback.

b) Conduct a scenario analysis to determine the sensitivity of NPV to changes in

number of units sold

variable cost per unit

fixed cost

cost of capital.

Set these variables at 10% above and 10% below

their base-case scenario, please include a graph in your analysis.

c) Conduct a scenario analysis. Assume that the best case condition is with no increase in

the sales price, 0%

increase in number of unit sold of 5%

decrease in the variable cost/unit -3%

all other variables remain the same.

For the worst case condition there will be

a decrease in units sold -5%

a decrease in unit price -2%

an increase in variable cost/unit 3%

The best case, worst case and base case conditions are assumed to have an

probability of

Best Case 33.33%

Worst Case 33.33%

Base Case 33.34%

Determine the standard deviation of the NPV and the project coefficient of variation NPV.

d) On the basis of your analysis, would you recommend that the project be accepted? What added advise and special attention would you give to the company with regard to the project?