AnteoTech Limited (ADO.AX) is considering embarking on a new project to introduce a new product

SARS-CoV-2 Antigen Rapid Diagnostic Test (Antigen RDT). The project is expected to last ten years.

Over the last 2 years (2019 and 2020), ADO has already spent 0.2 million on R&D to optimise the

design of the new product Antigen RDT. If the company would decide to go ahead with the project, the

necessary equipment requires an investment equal to 250% of the company's Property, Plant, and

Equipment (PPE), as per the fiscal year ended 30 Jun 2020. Additional shipping and installation cost to

purchase the equipment is $0.1 million. This equipment will be depreciated over 10 years using the

prime cost method. It is believed that the equipment can be sold at the end of the project with a

liquidation value of about 10% of the initial investment.

First-year revenue for the new product is expected to be 50% of total Revenue and other income for

ADO's fiscal year ended 30 June 2020. The new product's revenue is expected to grow at 25% for the

second year, then 20% for the third, 15% for the fourth year, 10% for the fifth year and after that decline

by 5% annually for the final 5 years of the expected life of the product.

If the ADO can manufacture the new product, the variable costs for the new product account for 45%

of the sale price. Annual fixed costs excluding depreciation will be $0.25 million. Net working capital

(NWC) will be 15 percent of the annual sale of the project, and will be contributed at the beginning of

each year. All NWC will be liquidated at the termination of the project. ADO has a 30 percent corporate

tax rate. The ASX200 expected return is 8 percent per annum, the relevant risk-free return is 1 percent

per annum.

Your team will have to determine the rest of the cash flows associated with this project. Here are some

tips to guide your analyses:

1) Obtain AnteoTech Limited's (ticker code: ADO.AX) financial statements. Download the annual

income statements, balance sheet and cash flow statements for the last four fiscal years. Make sure to

get the annual financial statements, instead of the quarterly.

2) You are now ready to determine the free cash flow. Compute the free cash flow for each year. Set

up the timeline and computation of the free cash flow in separate columns for each year of the project

life. Be sure to make outflows negative and inflows positive.

3) Assume that the project's cost of capital will be equal to the cost of equity of the company. The

company is not using debt.

4) Provide a clear overview table which shows the calculation of all cash flows, and determine the NPV

and the IRR of the project.