Answer to Question #3642 in Finance for Sarah

Question

Hi, i have to calculate the initial, operating and terminal cash flows and then find NPV.
The WACC i already found it and its 10.67% - the currency used here is bahraini dinar BD
Option 1: Lease the empty building next door, install new equipment, increase sales by 30%
Estimated cost of new equipment – BD500,000. Estimated useful life is 5 years. The investment in
inventory is expected to double. The lease of new premises will be BD 5,000 per month – however
there will be no change in other operating costs.
CURRENT SALES REVENUE= 750,000
CURRENT INVENTORY= 35,000
Additional Information
 Bahrain has recently introduced a corporate tax rate of 30%.
 Awali Bakery has a policy of 20% straight line depreciation on all fixed assets.
 Awali bakery has a policy that Goodwill is amortised over 3 years.
 Approximately 60% of all sales are on credit.
 The current loan has an interest rate of 8%pa which is fixed for the next 5 years.
How do i find the required calculation ?

Answer 1

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