Make-Up Ltd Case Study - Usefulness of Payback Period - Report Writing Accounting Assignment Help

Assignment Task:

Question 1:

Make-Up Ltd is a cosmetics manufacturer founded in the country of Ezipet, whose home currency is Ezipet dollar EZ$. The company is considering manufacturing a range of organic skin friendly face wash that will meet a niche market in Ezipet and in the neighbouring countries. The production will require an acquisition of manufacturing equipment at a cost of EZ$650,000, and the scrap value at the end of expected 4-year project life will be EZ$242,000. 

Make-Up Ltd have estimated the face wash price as at today’s value. The product will sell at a price of EZ$20 per unit and this price will increase in line with inflation in Ezipet which is expected to continue at the current rate of 5% per annum. The company expects to sell 15,000 units in the first year, increasing at a rate of 2% each year. The costs of manufacturing the face wash will consist of direct material cost of EZ$2 per unit, direct labour cost of EZ$5 per unit, these costs have been estimated at today’s value and will increase in line with inflation in Ezipet. The fixed overheads will be EZ$40,000  per annum.

The working capital equal to 10% of expected sales value for the first year will be required at the beginning, and will increase by EZ$8,000 in year 3. At the end of the project the working capital will be released. Corporation tax in Ezipet is 30%, payable one year in arrears. The tax allowable depreciation is at 20% on a reducing balance method.  The required rate of return for the project is 11%. 

YOU ARE REQUIRED TO:

1. Estimate the net present value of the project and advise the directors of Make-Up Ltd whether it should manufacture the face wash product. (maximum word count for the recommendation 50 words). 

2. Explain the usefulness of payback period as a project selection criterion. (maximum word count 100 words). 

3. Discuss any four non-financial objectives that a company should consider when making investment decisions. (maximum word count 100 words).  

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