5.1Calculate the net present value (NPV) before tax of investment A: a factory. Base your calculation on the following information:

1. The investment cost is paid in full in quarter 0, and the cost of the factory is 100000.

2. The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0

3. Only Basic jetpacks should be manufactured at the factory throughout its lifetime.

4. There is no investment in research to streamline production or material consumption.

5. Suppose the quarterly demand in the market is constant and given at P = 228 - 0.007 * Q, where P is price and Q is the number of jetpacks in demand.

6. There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 193 each.

7. You produce as much as you sell.

8. The costs associated with the quarterly production at the factory are given at K = 158 * Q + 20000, where 158 * Q is direct labor cost and materials, and 20000 is quarterly maintenance cost when Q is the number of jetpacks produced.

9. The company has an annual discount rate of 20% on the investment. This means you need to divide it by 4 to get the quarterly rate.

Fill in the calculated NPV before tax in the field. A deviation of 5% from the facets are accepted Recommendation: use Excel or similar tools to perform the calculation for this task. When using the Net Value function in Excel (NPV), pay particular attention to how you handle immediate cash flows.

5.2 Use the calculations you made in Problem 5 (5.1 ), to calculate the internal rate of return before tax for investment project A described in Problem 5(5.1). Internal interest rates can be calculated in several ways. Below you will find some options when using Excel. Solve the problem graphically and double check the answer using the built-in function for calculating the internal rate. Graphic Solution: By varying the yield requirement (interest rate) in the calculation for NPV, you can find several sets of values for the interest rate and NPV: (r1, NPV1), (r2, NPV2), (r3, NPV3), etc. Set the values for r and npv in two columns, and plot a line graph based on this data. Read off the internal rate. The method provides an inaccurate solution, but illustrates the evolution of npv (s). Built-in IR function: Excel's built-in function for calculating the internal rate is called IRR, and can be used for an accurate calculation of IRR. (Note: The investment cost in year 0 is treated here differently than in the NPV function).

Fill in the internal interest rate before tax in % in the field below. It is sufficient to answer with one decimal (eg an interest rate of 0.5467231 = 54.7%). A deviation of 5% from the answer is accepted.