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Question (Task 4):

Calculations in (a)

YALLA MOMOS INCOME STATEMENT FOR THE YEAR ENDING 2015 (IN AED) Amount in AED 504,000 151,200 352,800 Particulars Net Revenue Cost of Food sales Gross Profit Operating Expenses Rent Salaries Administrative costs Depreciation Utilities Miscellaneous expenses Advertisement costs Operating Profit Interest Net Profit 68,000 54,000 23,000 30,200 13,000 15,800 0 148,800 13,000 135,800 Note: AED - United Arab Emirates (Emirati) Dirham; US$1 = AED3.67 on April 30, 2016. Source: Created by the authors based on company data. YALLA MOMOS PROJECTIONS WITH AND WITHOUT EXPANSION (2016) (IN AED) Amounts shown in AED Sales price per unit Sales volume per period (units) Raw material cost Rent Salaries Administrative costs Depreciation Utilities Miscellaneous expenses Advertisement cost Without Expansion 20.00 27,720 6.00 75,000.00 61,400.00 26,000.00 34,720.00 14,000.00 17,060.00 8,000.00 With Expansion 20.00 36,360.00 6.00 88,000.00 75,000.00 34,000.00 38,360.00 19,000.00 19, 180.00 12,000.00 16,000 Interest 13,000 Continuing with the surge to expand and continuous look out for new ventures, below proposals are now available for consideration by the company. The Marketing manager suggested that if the company can sell its own Momos sauce bottles or ready-made Momos shell kit, it could be sold for three years, but not after that. The company did some market research and gathered the basic cash flows information. The cost of the market research information was 15,000. On the basis of this research, cash flows are expected to be as follows: Figures in '000 AED Momos sauce bottles 2018 2019 2020 Cash in flows 700 700 825 Momos shell kit 2018 2019 2020 Cash in flows 720 720 1,905 The cost of the new equipment will be 1,555,000 for Momos sauce bottles. This will be spent by the end of December 2017. The cost of the new equipment will be 2,155,000 for Momos shell kit. This will be spent by the end of December 2017. Depreciation of all fixed assets on the straight-line basis of 3 years' useful life. The company usually requires a payback period of less than 2 years. The cost of capital is 10%. The following information is also available: After 1 year after 2 years After 3 years Discount factors 10% 0.909 0.826 0.751 The net present value of the product lines at a discount rate of 25% have been calculated as 124,600 (negative) for Momos sauce bottles and 142,840 (negative) for Momo shell kit. Task 4 Present your arguments to Goel concerning acceptance (or not) of each project. Funds are available for only one product line. Your arguments should use the results from your calculations in (a) and a consideration of the advantages and disadvantages of each method of investment appraisal. Zobu wiede Yalla momurs LVP_Stalment Total with Tolai espansion 727,200 554,400 without Min Expansion : Sales- costof food rap 166,220 JS dales at a 216, 160 (P. dae 1-6443 contribution margin 887000 757000 Rent Jalany Ad. cost Depreciation Utilities Advertising tosts intereste 754000 67, 400 26,000 34,790 177660 341000 36,360 191006 8000 13,000 + 121000 16000 Total R19,180 301 3540 operatiry Income 138900 2074500 BEP Mos Lonbibution Margla schio Sem w Ralfr loperating leverage. for 206 70. 310,000 194000.: + 38.49 with Es For 2016 -70 | 430.JA 296,424 31 4076 2.45 Without .70 355.971 198,429 33.79 2.79