1. Mudit Manufacturing Ltd. is considering a new machine that costs 35,00,000 and would reduce pre-tax manufacturing costs by 11,00,000 annually. Mudit would use the written-down value method to depreciate the machine at the rate of 33.33%, and management thinks the machine would have a value of 3,30,000 at the end of its 5-year operating life. Working capital would increase by 3,50,000 initially, but it would be recovered at the end of the project's 5-year life. Mudit's marginal tax rate is 25%. The company's present Book Value capital structure is: Debentures (100 per debenture) Preference Shares (100 per share) Equity Shares (10 per share) 80,00,000 20,00,000 1,00,00,000 80,00,000 2,80,00,000 Retained Earnings Total All these securities are traded in the capital markets. Recent prices are: Debentures, *110 per debenture, Preference shares, *120 per share and Equity shares, *22.50 per share. Anticipated external financing opportunities are: a) Debenture redeemable at par; 10 years maturity, 11 per cent coupon rate b) Preference share redeemable at par; 10 years maturity, 12 per cent dividend rate c) Equity dividends' expected growth rate is 8 per cent. In addition, the dividend expected on the equity share at the end of the year is *2.20 per share; the anticipated growth rate in dividends is 7 per cent and the firm has the practice of paying all its earnings in the form of dividends. The cost of retained earnings is 15 per cent. i) Calculate the project's NPV, IRR, MIRR, and Payback. ii) Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario Worst case Base case Best case Probability 0.35 0.35 0.30 Cost Savings Salvage Value WC 88000 28000 40000 110000 33000 35000 132000 38000 30000 Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Would you recommend that the project be accepted? Page