Bull Diamond Limited, a Lusaka based company is considering a K1,000, 000,000 investments in a product called Blue Diamond in a franchise business deal with a South African company called (OMEGA Pty) with a life span of eight years. The scrap value of the equipment used in the production of Blue Diamond is estimated to be K100, 000,000 at end of year eight. The company has estimated production costs to be variable costs are K80 per unit and, fixed costs are K27, 000, 000 per year increasing at the rate of 8% per annum. Wages and salaries are 40% of Revenue and any other relevant costs to get the product to the consumers are pegged at 10% of Revenue.

The company expects to produce and sell 2,500,000 units per annum. The estimated selling price for Blue Diamond is K300 per unit. Included in the fixed costs is depreciated of K50, 000, 000 increasing at 20% per annum.

The Company has a marginal tax rate of 30%

The project cost of capital is 12%.

Required:

1. Calculate the RELEVANT CASH FLOWS for years zero through to eight
2. Calculate the NPV of the project and advise whether the investment is financially viable.
3. Calculate the Payback Period and Discounted Payback Period
4. Calculate the PI and the ARR for the project
5. Calculate the Internal Rate of Return (IRR) of the project and advise whether the investment is financially viable.