NPV and Payback Period Assignment
This case comprises the next info relating to the XYZ FASHION venture : 1. The lifetime of the XYZ FASHION venture was anticipated to be six years. Assume the evaluation passed off on the finish of 2012. 2. The advised retail worth of the gown was $190. Gross margins for high-end style averaged about 40% on the retail degree, that means every gown offered would web XYZ $115. three. The worldwide style market in 2011 totalled roughly $74.5 billion and was anticipated to develop at a CAGR of 1.eight% from 2011 to 2018, reaching $84.four billion by 2018.three Primarily based on market analysis and evaluation of different current endorsements, the XYZ advertising and marketing division estimated the next gross sales volumes for XYZ 2013: 12 months 2013 2014 2015 2016 2017 2018 Clothes offered (mio)1.2 1.6 1.four 2.four 1.eight zero.9 The 2016 quantity assumed an influencer participated within the subsequent ten style exhibits. four. For the primary two years, the introduction of XYZ FASHION would scale back gross sales of current XYZ attire as follows: Misplaced gross sales: 2013: $35 million 2014: $15 million Assume the misplaced income had the identical margins as XYZ 2013. 5. With the intention to produce the gown, the agency wanted to construct a manufacturing unit in Indonesia. This required an instantaneous outlay of $150 million, to be depreciated on a 39-year MACRS5 foundation. Depreciation percentages for the primary six years respectively have been: 2.6%, 5%, four.7%, four.5%, four.three%, and four.zero%. The agency’s analysts estimated the constructing could be offered for $102 million at venture termination. This “salvage worth” has not been considered when computing annual depreciation costs. 6. The corporate should instantly buy tools costing $15 million. Freight and set up of the tools would value $5 million. The price of tools and freight/set up was to be depreciated on a five-year MACRS foundation. Depreciation percentages for the six years respectively have been: 20%, 32%, 19%, 12%, 11%, and 6%. It was believed the tools may very well be offered for $three million upon venture termination. 7. With the intention to manufacture XYZ FASHION, two of the agency’s working capital accounts have been anticipated to extend instantly. Roughly $15 million of stock could be wanted rapidly to fill the availability chain, and accounts payable have been anticipated to extend by $5 million. By the top of 2013, the accounts receivable steadiness could be eight% of venture income; the stock steadiness could be 25% of the venture’s variable prices; and accounts payable could be 20% of the venture’s variable prices. All working capital could be recovered on the finish of the venture by the top of the sixth yr. eight. Variable prices have been anticipated to be 55% of income. 9. Promoting, common, and administrative bills have been anticipated to be $7 million per yr. 10. An influencer could be paid $2 million per yr for his endorsement of XYZ, with a further $1 million bonus in 2016. 11. Different promoting and promotion prices have been estimated as follows: 12 months 2013 2014 2015 2016 2017 2018 A&P Expense $25 mio $15 $10 $30 $25 $15 12. XYZ had already spent $2 million in analysis and improvement on the venture. 13. The XYZ FASHION venture was to be financed utilizing a mixture of fairness and debt. The curiosity prices on the debt have been anticipated to be roughly $1.2 million per yr. The XYZ low cost charge for brand new initiatives reminiscent of this was 11%. 14. XYZ's efficient tax charge was 40%. Consider the venture (together with calculations of NPV and payback interval) and recommendation. Get Finance homework help as we speak