An existing company (Widad ltd) decides to invest in new line of product at the beginning of year 2019. The investment consists on an equipment which will cost 90 000 € plus 10 000 € for installation. The equipment will be used for 5 years and depreciated over this period (straight-line method). At the end of the 5th year the equipment can be sold at 25000 €. 

 

Your accountant has prepared the following information:

 

1. Find the annual depreciation for the asset 

2. Explain why a business should take account of the working capital associated with project

3. Specific table with the change of working capital associated with this project 

4. Find the initial cash flow (Detail required) 

5. Find the operating cash flow in a table format. (detail calculation is required) 

6. Find the final cash flow. The line product will be sold and the whole replaced by another project by the end of year 5 

7. Find the NPV of the project. 

8. What the meaning of the discount rate used by the company? 

9. Find the IRR of the project 

10. Find the Discounted pay-back period? 

11. What would you advise the company about this project?

Your accountant has prepared the following information Years Additional EBITDA () generated by the new investment Working capital () generated by the investment in % of EDBITDA 1 25 000 25% 2 30 000 Corporate tax: 25% Discount rate used the company: 10% 25% 3 35 000 22% 4 40 000 21% EBITDA: (Earnings before interest, taxes, depreciation and amortization), WC: working capital 5 45 000 20%