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2:48 PM

Year 1

Year 2

Year 3

Year 4

31%

KB company is a wholesaler of books which is keen to

explore the financial implication of making a significant

investment in equipment and the development of

website. Due to the fast-changing nature of the

equipment and the internet software. KB's

management has set a project lifetime of 4 years, i.e,

the equipment will replaced, and the new website

designed. An amount of N$ 300 000 will be paid to the

new equipment at the beginning of the project. The

company's costs behave in such a way that its

contribution on sales ratio is expected to be 40% and

its margin 10%

Sales estimates are shown below:

Total sales if no

investment

N$ 000

12 400

13 250

13 620

14 000

V

Total sales with

investment

N$ 000

12 950

13 380

14 340

15 000

Variable cost selling price are expected to remain

stable in order to remain competitive over the duration

of the project.

Initial working capital of N$ 20 000 will required at the

start of the project.

The suppliers will be paid a retaining /advisory fee of

N$120 000 in year 1, N$ 150 000 in year 2, N$ 170

000 and N$ 190 00 in year 3 and 4,respectly.

The residual value at the end of the project will be N$

30 000. KB paid consultancy fee of N$ 150 000

experts who worked on the equipment.

REQURED/n. MTC-Register your S...

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equipment and the internet software. D

management has set a project lifetime of 4 years, i.e,

the equipment will replaced, and the new website

designed. An amount of N$ 300 000 will be paid to the

new equipment at the beginning of the project. The

company's costs behave in such a way that its

contribution on sales ratio is expected to be 40% and

its margin 10%

Sales estimates are shown below:

Year 1

Year 2

Year 3

Year 4

2:48 PM

Total sales if no

investment

N$ 000

12 400

13 250

13 620

14 000

@31%

Total sales with

investment

N$ 000

12 950

13 380

14 340

15 000

V

Variable cost selling price are expected to remain

stable in order to remain competitive over the duration

of the project.

Initial working capital of N$ 20 000 will required at the

start of the project.

The suppliers will be paid a retaining /advisory fee of

N$120 000 in year 1, N$ 150 000 in year 2, N$ 170

000 and N$ 190 00 in year 3 and 4,respectly.

The residual value at the end of the project will be N$

30 000. KB paid consultancy fee of N$ 150 000

experts who worked on the equipment.

REQURED

Using the Net Present Value (NPV) technique to

evaluate whether KB should go ahead with the project

or not. (30 marks)

Fig: 1

Fig: 2