Question
Answer the below questions in your word file and refer to your excel spreadsheet as a supporting document. Upload your excel spreadsheet under Excel Submissions.
Answer the below questions in your word file and refer to your excel spreadsheet as a supporting document. Upload your excel spreadsheet under Excel Submissions. All amounts are in $AUD. Blackmores is evaluating to invest into a new manufacturing facility in Asia. In order to mitigate the risk and assess the fit for purpose of this manufacturing plant Blackmores asked SGS Ltd. to conduct a technical due diligence on the plant and advise on the feasibility of this project. SGS Ltd. is asking $1 Million as a fixed fee for its consulting services. The manufacturing plant has an initial outlay of dollars $500 million and will produce 150,000,000 tablets ready for sale starting at the end of year 1 until the end of year 5 and 250,000,000 tablets starting at the end of year 6 until the end of year 10. It will also incur working capital expenses at the end of year 1 to 5 of $1 million (this working capital will not be recovered). Assume that the average selling price of a single tablet is $1 over the ten years. The operating costs of the project will be 35% of the revenues from year 1-10. The investment will be depreciated on a straight-line basis over ten years to 0 book value. Blackmores has estimated that the manufacturing plants can be sold at the end of year 10 for $10 million. The tax rate is 30%. All cash flows are annual and are received at the end of the year. The weighted average cost of capital for Blackmores is 10%. a) Based on the above information calculate the FCFs of the project. b) Calculate the NPV for the new manufacturing facility. c) Blackmores would like to recover the investment within 5 years. What is the Discounted Payback Period for the project? d) What is the IRR for the project? e) Based on your analysis a) to d) should Blackmore undertake this project? Justify your answer with reference to theory.
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