AcePearl Sdn$.$ Bhd$.$ has developed a new battery operate hand drill. It would cost RM$1,000,000$ to buy the equipment necessary to manufacture the drills, and it would require net operating working capital equal to $10\%$ of sales in the initial year. The project would have a life of $5$ years. If the project is undertaken, it must be continued for the entire $5$ years.

The firm believes it could sell $6,500$ units per year. The drills would sell for RM$350$ per unit and that variable costs would amount to RM$200$ per unit. The company$$s non$-$variable costs would be RM$125,000$ at Year $1$ and would increase with inflation. After the first year, the sales price and variable costs will increase at the inflation rate of $3\mathrm{.}5\%.$

The equipment would be depreciated over a $5-$year period, using the straight$-$line method. The estimated market value of the equipment at the end of the project$$s $5-$year life is RM$150,000.$ The tax rate is $25\%$

Also, the project$$s returns are expected to be highly correlated with returns on the firm$$s other assets. Its cost of capital is $10\%$ for average$-$risk projects, defined as projects with a coefficient of variation of NPV between $0\mathrm{.}8$ and $1\mathrm{.}2.$ Low$-$risk projects are evaluated with a WACC of $8\%$ and high$-$risk projects at $13\%.$

Question $1($CLO$1)$

Develop a spreadsheet model and use it to find the project$$s NPV$,$ IRR and payback period.

$(35$ Marks$)$