MAC3702 SEM 1 OF 2026 EXAM SOLUTIONS

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, a) Net Present Value (NPV) of the ApexPack Systems Project

Workings & Assumptions:

 Revenue: Max capacity 9,000,000 units. Year 1 runs at 80% capacity (7,200,000 units) and Years 2-5 at 100%. Initial
selling price is R22, increasing by 5% annually.

 Variable Costs: 55% of the selling price for that year.

 Fixed Costs: R3,500,000 in Year 1, increasing by 6% per year.

 Depreciation: R68,000,000 x 25% = R17,000,000 per year (straight-line). Fully depreciated by Year 4.

 Tax: 27%. Tax shield on the R2,500,000 marketing cost is realised in Year 1.

 Working Capital: R14,000,000 outflow at Year 0, R2,000,000 outflow at Year 1. Recovery at Year 5 is 60% of total
R16,000,000 = R9,600,000.

 Salvage Value: Expected at R8,000,000. Since the book value is R0, the recoupment is fully taxable: 8,000,000 -
(8,000,000 x 27%) = 5,840,000.

 Sunk Costs: The feasibility study (R1,200,000) and consultant costs (R800,000) are sunk and excluded.

Description Year 0 (R) Year 1 (R) Year 2 (R) Year 3 (R) Year 4 (R) Year 5 (R)


Capital
(68 000 000)
investment