A real estate construction company currently sends out its doors for painting to specialist firms. During the last financial year, the number of doors painted was 1,826 at a cost of $91,300. You are considering the possibility of this work being undertaken by the company in a workshop set up for this purpose. The following information relates to the project: 1- The paint shop can be set up in an existing warehouse that has not been used for some years and is estimated to be worth $300,000. 2- Equipment costing $160,000 needs to be purchased with a life expectancy of 6 years. The residual value is estimated as $80,000 at the end of year 6 . 3- The annual costs in today's money of the operation are estimated to be: "the bead office costs are paid in both seenarios (the doors are painted indoor or outdoor) 4. Based on the number of doors painted last year, the cost of consumable materials and other variable costs is estimated at $21,912. 5- Tax will be recoverable in year 2 and payable thereatter as shown below: The head office costs are a re-allocation of existing overheads. Required: - Ignoring the opportunity cost of the premises, calculate the following performance indicators relating to the proposal: ( 30 marks) a- NPV based on a cost of capital of 11%. b- IRR. (Hint use 5\%) c- Payback period in both nominal and present-value terms? - Do these indicators sugeest that the project should be undertaken? A real estate construction company currently sends out its doors for painting to specialist firms. During the last financial year, the number of doors painted was 1,826 at a cost of $91,300. You are considering the possibility of this work being undertaken by the company in a workshop set up for this purpose. The following information relates to the project: 1- The paint shop can be set up in an existing warehouse that has not been used for some years and is estimated to be worth $300,000. 2- Equipment costing $160,000 needs to be purchased with a life expectancy of 6 years. The residual value is estimated as $80,000 at the end of year 6 . 3- The annual costs in today's money of the operation are estimated to be: "the bead office costs are paid in both seenarios (the doors are painted indoor or outdoor) 4. Based on the number of doors painted last year, the cost of consumable materials and other variable costs is estimated at $21,912. 5- Tax will be recoverable in year 2 and payable thereatter as shown below: The head office costs are a re-allocation of existing overheads. Required: - Ignoring the opportunity cost of the premises, calculate the following performance indicators relating to the proposal: ( 30 marks) a- NPV based on a cost of capital of 11%. b- IRR. (Hint use 5\%) c- Payback period in both nominal and present-value terms? - Do these indicators sugeest that the project should be undertaken
