Question about Economics Assignment
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Question about Economics Assignment
2nd question (25 marks)
Neqi plc has just invested £10.5 million in new equipment to make a new type of reusable face mask. The company did research on the mask to filter all COVID-19 viral types. Furthermore, according to the report, there is potential to sell an extra 500,000 devices every year (from the current level). Year after year, the new unit count will be the same. The £0.45 million research cost will be paid in the first year of the project. Three masks are included in each bundle.The new mask’s pricing structure (in British pounds) is as follows:
XXXXXXXXXXXXXXXXXX
The price per unit of output
1.50/unit direct cost
The fixed overhead cost per unit is $1.00.
(2.50)
YY
The fixed overhead was connected to the mask factory’s existing expenditures. Due to the improved quality of Neqi’s masks, the government awarded Neqi plc a full tax rebate for the length of the project.
The purpose of this essay was to explore the nature of face masks and to compare Neqi’s highly acclaimed product and pricing to that of competitors:
https://www.theguardian.com/world/2020/oct/30/face-mask-test-which-best-at-limiting-spread-covid
The new manufacturing line will be operational for four years. It needs £0.5 million in initial working capital, which will be maintained over the following four years. At the end of the project’s life cycle, the working capital will be recovered. At the conclusion of the project’s lifespan, the equipment will have a residual value of £2.0 million.
The new production line is housed in a currently vacant facility that was purchased three years ago for £6.5 million and recently received a £1.5 million bid from another company. The structure was saved and is likely to be sold for £2.5 million in four years.
The strategic planning division of Neqi forecasted the following average yearly rates of inflation for the project:
Prices for masks have increased by 5% per year.
Direct costs are expected to rise by 3% every year.
Overhead costs are fixed at 5% each year.
For projects with a similar level of risk, Neqi’s yearly real cost of capital is 8%. Inflation is currently at 5.56 percent per year.
a. What is the actual / monetary cost of capital for the project?
b. Identify the reasons for three project cash flow components’ insignificance.
c. Calculate the project’s financial viability using nominal and actual cash flows. Financial statistics should be expressed in millions of pounds sterling, and intermediate calculations should be accurate to two decimal places.Note: All workings will be shown along with explanations.
Two references are required as a minimum.
RUBRIC
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