A company is reviewing an investment proposal in a project involving a capital outlay of GHS 9,000,000 in plant and machinery. The project would have a life of 5 years at the end of which the plant and machinery could fetch a resale value of GHS 3,000,000. Further, the project would also need a working capital of GHS 1,250,000 which would be built during the year 1, increase by 5% every year and to be released at the end of the project. The project is expected to yield the following cash profits: 4 Year 1 2 3 5 Cash Profit (GHSm) 3.5 3.0 2.5 2.0 2.0 A 25% deprecation for plant and machinery is allowed as income tax exemption on reducing balance basis. Assume that the corporate tax is paid in the same year to which it relates and every year's deprecation allowance will be claimed against the same year. The assistant finance manager has calculated the NPV of the project using the company's corporate target of 20% pre-tax rate return and has ignored the taxation effects in the cashflows. As the newly recruited finance manager, you realised that the projects cashflows should incorporate the effects of tax. The corporate tax is expected to be 35% during the life of the project and thus the company's rate return post-tax is 13% (65% of 20%). Your assistant is surprised to note the difference between discounting the pre-tax cash flows at a pre-tax discounted cash flow rate and post-tax cashflows at a post-tax rate Required: (a) Calculate the NPV of the projects as the assistant finance manager would have calculated it (b) Re-calculate the NPV of the project taking tax into consideration (c) Comment on the desirability of the project based on your findings in part (b) NOTE: (Present your answers in thousands of GHS)