A consulting firm hired by Mystic Products for a cost of $25,000 identified a market opportunity to introduce a new product to the super city of Auckland. The initial outlay for equipment is estimated to be $650,000 and it can be depreciated over five (5) years, when the project will end due to diminishing yields. The initial working capital requirement to get the production started is estimated to be 10% of the expected sales in the first year of $1,000,000. All working capital is liquidated at the termination of the project. The average operating cash inflow forecasted for the next 5 years is $230,000. The required rate of return for the project is 13%.

A consulting firm hired by Mystic Products for a cost of $25,000 identified a market opportunity to introduce a new product to the super city of Auckland. The initial outlay for equipment is estimated to be $650,000 and it can be depreciated over five (5) years, when the project will end due to diminishing yields. The initial working capital requirement to get the production started is estimated to be 10% of the expected sales in the first year of $1,000,000. All working capital is liquidated at the termination of the project. The average operating cash inflow forecasted for the next 5 years is $230,000. The required rate of return for the project is 13%. Required You can type your answers and working straight into the box below, or you can type your answers into a document or a spreadsheet, and cut and paste into the box below, or add or drop the file into the file box below the textbox, or you may handwrite the answers, take a photo and upload into the File uploading box at the bottom of this screen (scroll down). You can download the formula sheet here if you haven't already a. Calculate the initial investment. (3 marks) b. What are the operating cash flows over the life of the proposed project? (1 mark) C. What is the terminal cash flow? (3 marks) d. What is the net present value? (4 marks) e. What is the project's payback period? (2 marks) f. Should the project be accepted or rejected? Please explain why or why not. Mystic's maximum payback period for similar short-lived projects is around 2.5 years. (4 marks) A consulting firm hired by Mystic Products for a cost of $25,000 identified a market opportunity to introduce a new product to the super city of Auckland. The initial outlay for equipment is estimated to be $650,000 and it can be depreciated over five (5) years, when the project will end due to diminishing yields. The initial working capital requirement to get the production started is estimated to be 10% of the expected sales in the first year of $1,000,000. All working capital is liquidated at the termination of the project. The average operating cash inflow forecasted for the next 5 years is $230,000. The required rate of return for the project is 13%. Required You can type your answers and working straight into the box below, or you can type your answers into a document or a spreadsheet, and cut and paste into the box below, or add or drop the file into the file box below the textbox, or you may handwrite the answers, take a photo and upload into the File uploading box at the bottom of this screen (scroll down). You can download the formula sheet here if you haven't already a. Calculate the initial investment. (3 marks) b. What are the operating cash flows over the life of the proposed project? (1 mark) C. What is the terminal cash flow? (3 marks) d. What is the net present value? (4 marks) e. What is the project's payback period? (2 marks) f. Should the project be accepted or rejected? Please explain why or why not. Mystic's maximum payback period for similar short-lived projects is around 2.5 years. (4 marks)