QUESTION 5 (30%)
At the end of October 2023, you signed a contract as a financial analyst and consultant at Summa
Watch Company, a smartwatch manufacturer. The company plans to expand its business by
purchasing land for IDR 150,000,000,000 to open tenants in many branches. The company's
valuation of the land they purchased is IDR 145,000,000,000, which in 2027 is predicted to be sold
for IDR 175,000,000,000.
However, due to the large number of competitors, the company plans to moderate the expansion by
involving market analysts and economic analysts who are not in your field by paying a fee of IDR
150,000,000, which predicts that the sales you can make for the smartwatch are as follows:
Period
2024
2025
2026
2027
Unit Sold 150.000 225.000 300.000 375.000
with the assumption that the selling price is adjusted to the upper limit price on the market of IDR
1,000,000 with a gross profit margin of 70%. Analysts consider that after 2027, there will be much
uncertainty, so it is best to stop it to avoid losses.
Summa Watch Company estimated that the fixed cost for the sale was IDR 3,750,000,000. The
machine used to produce the smartwatch is Rp. 3,000,000,000 can be depreciated over three years
and sold after Rp1,500,000,000. In addition, it is known that the Net Working Capital required is
IDR 150,000,000, with the tax rate is 30% and the required return on the project being 15%.
What is the NPV of the project? Should it accept the project? (complete the answer using cash flow
projections).
