Question

Question Five (18 Marks roject selection would ac in c apain why the NP approach is the most appropriate tool invesiment project process for multinational Corporations that usually enjoy wisy Ces lo would Irakcis. 15 Mark You Sowa Investments Ltd (ISII.) is an up and coming medium-sized company lo Dar es Salaam. It was established about lifteen years ago by John Pese and his as seil pharmaceuticals, cosmetics, toiletries, magazines, and various novelties. Its inos annual net income statement is as follows (Figures in 7'shs million): company located in pics and his assuciales to tries. Its most recent 5.100 Sales revenue Total costs Cost of gouds sold Wages and salaries Rent Depreciation Utilitics Miscellaneous Total Net profit before tay 3.780 500 360 5.130 YSIL's sales and expenses have remained relatively constant over the past few years and are expected to continue unchanged in the near future. To increasc sales, VSIL is considering using some floor space for a small soda fountain YSiL woull operate the sole found for ar initial three-year period and then would ree raiude its pro!itability The soda fountain would require an inc:emental investinent of Tshs of anillor to lease furniture, equipment, uten als and so or. This is the only capital investnient required during the three-year period Aive inci of that time, additional capital wound be required to continu a tang the soda lor no capital would be recovered in it were shut down. The sad fountain is recte 'o have annual sales of Tshs 300 million and food and materials expense of Tshs 60 onion per yer The soda fountain is also expected to crease wage and stay engine by 5%. and Jul.) Ciences by 5%. Because the scoa iountain will reduce the floor space available for oisplay of other merchandise, sales of non-soda fountain items are expected to decline by 10% Required: (1) Calculate the relirementalashows the sola fountala - 17k (1) Assume that YSII has the cal l i t Wher why 1.

Answer 1

i) CALCULATION OF INCREMENTAL CASHFLOW FOR SODA FOUNTAIN

For soda fountain	(inTshs million)
Sales	300
Total expenses
Expenses (food and material)	60
Wage and salaries	48
utilities	6
total	114
annual cashflow	186

Initial investment = Tshs 60 million