A company in the pharmaceutical sector is evaluating an investment project that was presented to produce chlorine dioxide, which could prevent and contribute to the cure of Covid-19. This project would involve the company investing in a series of high-tech equipment to produce the drug. Due to the risk involved in not yet having the approval of the health authorities in the country, the Board of Directors would seek a higher than usual return to offset the risk of the project, in addition to financing most of the project (that is, using the lowest possible proportion of own resources).

The company expects to produce this medicine for only 18 months, starting in January 2023, when the equipment is available, installed and working.

A) Teams The main extraction equipment to be purchased is made in England and costs $425k USD (plus $35k to cover shipping and installation costs): According to the manufacturer's specifications, the equipment requires a review and total maintenance every 6 months (which implies a cost similar to that of acquisition), so the company will choose to renew them for new equipment. The renewal cost of each machine will be subsequent to an increase of 4% over the price of the previous machine (also applies to installation and shipping costs). Each piece of equipment will only be adjusted for 6 months, at which time the replacement equipment will be ready and installed to start production in month 7 and 13, respectively. Regardless of the time of use, this equipment will be depreciated according to current legislation (2 years each equipment). Once each of the 6-month periods has elapsed, the equipment will be sold at 80%, 75% and 60% of its original value, respectively.

The cost of the packaging equipment is $125k USD plus $15k for shipping and installation; This equipment will be sold for $100k at the end of the project and will be depreciated over 5 years.

B) Additional Investments The company requires an additional investment to cover its cash and material needs, which will be made in 2022 and will amount to $2.6 million; additionally, its current liabilities are estimated in 2022 at $800k.

C) Financing A bank loan of $1.5 million USD is contemplated through an English bank that offers the following conditions: rate of 5.5%, 6.25% and 6.75% per annum, capitalizable monthly during each of the 3 semesters that the project lasts, respectively, with monthly payments due.

D) Data table The following table shows the estimated production, sale price (consider that the company expects a gross margin of 50%), operating and administrative expenses. Suppose the company wants to make an advertising investment (during 2022) of $1 million before starting the project.

E) Additional Data The tax rate paid by the company is 30% and the weighted average cost of capital (including bank loans) is 18%.

Based on the sales and operating forecasts, determine the project's net cash flows and the desirability of investing in the project. Consider all flows past due and in dollars.

\begin{tabular}{|r|l|l|l|l|} \hline MONTH & UNITMONTH & SELLPRICEUNIT & OPERATING EXPENSE & ADMNISTRTIVE EXPENSE \\ \hline 1 & 487,500 & $4.65 & $112,500 & $85,000 \\ \hline 2 & 491,137 & $4.65 Text & $112,500 & $85,000 \\ \hline 3 & 493,720 & $4.75 & $112,500 & $85,000 \\ \hline 4 & 495,468 & $4.75 & $112,500 & $85,000 \\ \hline 5 & 498,822 & $4.75 & $112,500 & $85,000 \\ \hline 6 & 500,583 & $4.75 & $112,500 & $85,000 \\ \hline 7 & 503,161 & $4.75 & $125,000 & $85,000 \\ \hline 8 & 506,185 & $4.75 & $125,000 & $85,000 \\ \hline 9 & 509,121 & $4.75 & $125,000 & $85,000 \\ \hline 10 & 512,746 & $4.90 & $125,000 & $85,000 \\ \hline 11 & 514,156 & $4.90 & $125,000 & $85,000 \\ \hline 12 & 517,626 & $4.90 & $125,000 & $85,000 \\ \hline 13 & 520,841 & $4.90 & $135,000 & $110,000 \\ \hline 14 & 522,607 & $4.90 & $135,000 & $110,000 \\ \hline 15 & 525,638 & $4.90 & $135,000 & $110,000 \\ \hline 16 & 528,014 & $4.95 & $135,000 & $110,000 \\ \hline 17 & 529,957 & $4.95 & $135,000 & $110,000 \\ \hline 18 & 533,767 & $4.95 & $135,000 & $110,000 \\ \hline \end{tabular} \begin{tabular}{|r|l|l|l|l|} \hline MONTH & UNITMONTH & SELLPRICEUNIT & OPERATING EXPENSE & ADMNISTRTIVE EXPENSE \\ \hline 1 & 487,500 & $4.65 & $112,500 & $85,000 \\ \hline 2 & 491,137 & $4.65 Text & $112,500 & $85,000 \\ \hline 3 & 493,720 & $4.75 & $112,500 & $85,000 \\ \hline 4 & 495,468 & $4.75 & $112,500 & $85,000 \\ \hline 5 & 498,822 & $4.75 & $112,500 & $85,000 \\ \hline 6 & 500,583 & $4.75 & $112,500 & $85,000 \\ \hline 7 & 503,161 & $4.75 & $125,000 & $85,000 \\ \hline 8 & 506,185 & $4.75 & $125,000 & $85,000 \\ \hline 9 & 509,121 & $4.75 & $125,000 & $85,000 \\ \hline 10 & 512,746 & $4.90 & $125,000 & $85,000 \\ \hline 11 & 514,156 & $4.90 & $125,000 & $85,000 \\ \hline 12 & 517,626 & $4.90 & $125,000 & $85,000 \\ \hline 13 & 520,841 & $4.90 & $135,000 & $110,000 \\ \hline 14 & 522,607 & $4.90 & $135,000 & $110,000 \\ \hline 15 & 525,638 & $4.90 & $135,000 & $110,000 \\ \hline 16 & 528,014 & $4.95 & $135,000 & $110,000 \\ \hline 17 & 529,957 & $4.95 & $135,000 & $110,000 \\ \hline 18 & 533,767 & $4.95 & $135,000 & $110,000 \\ \hline \end{tabular}