As the financial advisor to Have Fun Manufacturing you are evaluating the following new investment in a

manufacturing project: $-$

$$ The project has a useful life of $8$ years.

$$ Land costs $$10$m and is estimated to have a resale value of $$25$m at the completion of the project.

$$ Buildings cost $$15$m$,$ with allowable depreciation of $8\%$ pa reducing balance and a salvage value

of $$12$m$.$

$$ Equipment costs $$5$m$,$ with allowable depreciation of $15\%$ pa reducing balance and a salvage value

of $$1$m$.$ An investment allowance of $20\%$ of the equipment cost is available.

$$ Revenues are expected to be $$13$m in year one and rise at $5\%$ pa$.$

$$ Cash variable costs are estimated at $40\%$ of revenue.

$$ Cash fixed costs are estimated at $$3$m pa$.$

$$ The firm has spent $$2$m on research and development for the project.

$$ Managerial salaries of $$900,000$ will be allocated to the project, but these managerial positions will

be unaffected by the acceptance of the project.

$$ An amount of $$200,000$ has been spent on a feasibility study for the new project.

$$ The project is to be partially financed with a loan of $$14$m to be repaid annually with equal

instalments at a rate of $3\%$ pa over $8$ years.

$$ Except for initial outlays, assume cash flows occur at the end of each year.

$$ The tax rate is $20\%$ and is payable in the year in which profit is earned.

$$ The after$-$tax required return for the project is $12\%$ pa$.$