PINKY PLASTIC BERHAD (CASH FLOW ANALYSIS AND CAPITAL BUDGETING) Pinky Plastic Berhad is a midsized plastic manufacturer

[answerhappygod]

PINKY PLASTIC BERHAD (CASH FLOW ANALYSIS AND CAPITALBUDGETING)Pinky Plastic Berhad is a midsized plastic manufacturer located inMuar, Johor. The company CEO is Encik Ramadhan, who inherited thecompany. Over the years, the company expanded into manufacturingand is now a reputable manufacturer of various plastics items. Oneof the major revenue-producing items manufactured by Pinky PlasticBerhad is a garbage container. Pinky Plastic Berhad currently hasone garbage container model, and sales have been excellent. PinkyPlastic Berhad spent RM75,000 to develop a prototype for a newgarbage container that is lighter and more user friendly comparedwith the current model.The company has spent a further RM20,000 for a marketing study todetermine the expected sales figures for the new garbage container.Pinky Plastic Berhad can manufacture the new garbage containers forRM85 each in variable costs. Fixed costs for the operation areestimated to run RM600 000 per year. The estimated sales volume is74,000, 95,000, 125,000, 105,000, and 80,000 per year for the nextfive years, respectively. The unit price of the new garbagecontainer will be RM150. The necessary equipment can be purchasedfor RM1.2 million and will be depreciated on a seven-year MACRSschedule. It is believed the value of the equipment in five yearswill be RM200 000.As previously stated, Pinky Plastic Berhad currently manufactures agarbage container. Production for the existing model is expected tobe terminated in two years. If Pinky Plastic Berhad does notintroduce the new garbage container, sales will be 80,000 units and60,000 units for the next two years, respectively. The price of theexisting garbage container is RM120 per unit, with variable costsof RM65 each and fixed costs of RM800 000 per year.If Pinky Plastic Berhad does introduce the new garbage container,sales of the existing garbage container will fall by 15,000 unitsper year, and the price of the existing units will have to belowered to RM100 each. Net working capital for the garbagecontainers will be 20% of sales and will occur with the timing ofthe cash flows for the year; for example, there is no initialoutlay for NOWC, but changes in NOWC will first occur in year 1with the first year's sales. Pinky Plastic Berhad has a 35%corporate tax rate and a 12% required return.Answer the questions below and make sure to show all work that ledup to your answer.Suppose Pinky Plastic Berhad loses sales on other models because ofthe introduction of the new model. How would this affect youranalysis?