1. For Project A, Calculate the expected net present value (NPV), internal rate of return (IRR), profitability index (PI), return on capital employed (ROCE), payback period (PP) and discounted payback period (DPP)

Wave Co is considering investing $3.8 million in some projects. The finance manager has identified three possible options from three different product lines of the company for investment and you as a consultant have been assigned the job of appraising these projects for investment. The following information is available about the capital structure of the company: Authorized share capital, $0.50 each 103 million shares Issued share capital, $0.50 each 83 million shares 10% Bonds issued, $100 each 2.5 million bonds The current market price of a share is at $6 per share after the dividend has been just paid and next year's dividend per share is expected to be 10 cents. The average annual dividend growth rate is at 16 percent. The bonds which are compounded annually are currently being traded in the market for a price of $102 per bond and redeemable in 3 years at par. The projects identified are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears. The details of the projects identified are as follows: Project A This project has been proposed by the Hardware Division for the expansion of production on an existing product and requires a machine costing $1,050,000 and an additional $60,000 is also needed as installation cost. The scrap value of the machine is 5% of the purchase price and the expected life is four years. The following is forecasts of productions, sales, variable costs and selling prices. Year 7 2 3 4 Production (units) 32,300 34,300 36,600 38,800 Sales (units) 31,800 33,600 37,300 39,300 Variable production cost per unit ($) 62 74 83 90 Selling price per unit ($) 97 109 118 125 The fixed overheads of $768,000 in the first year is expected to increase by $10,000 every year. The initial investment will attract tax-allowable depreciation on 20% reducing balance basis. The company wants to finance this project fully using equity capital