Colidial feasibility Study for Investment Projects The financial fease (4) The fifth factory of the industrial CUCO the following data and information: (1) The economic life of the project is 8 years starting with one establishment year (1) followed by seven operating years ( Y1,...Y7). (2) The investment costs which will be incurred in the establlshment year are as follows in LE million: 10 Land, 5 Buildings, 25 Machinery, 4 Trucks, 1 Furniture, 10 German Know-how, 2 Other Various Long-term Intangibles, and 3 First Working Capital. The long-term tangible depreciable fixed assets will be equally dopreciated over the seven years of operating, while all of the long-term intangibles will be equally amortized over the first four years of operating. (3) Part of the investment costs will be financed by an owned capital of LE 40 million which will be provided in cash during the establishment year, while the remaining part of the investment costs will be financed by a 14% - interest-loan which will be obtained at the end of the establishment year. This loan will be repaid over five yearly equal installments covering the first five years of operating. At the end of the first year of operating the interest will be LE 2.8 million. After the first year of operating, the annual interest rate will be applied to the declining balance of the loan's principal. (4) No credit sales will be allowed and the current operating cash sales revenue is expected at LE 30 million during each of the first three years of operating and LE 20 million during each of the last four years of operating. In addition to the cash sales, it is expected to collect in cash a net residual value of LE 17.0735 million at the end of the economic life of the project without expecting any capital gains or losses. (5) The annual current operating cash costs shall all be paid when incurred and the expected income statements of the project reveal, in LE million, the following Accounting Operating Net Profits before deducting an income tax of 20\%: 13 at the end of each of Y1 and Y2,9 at the end of Y3, 4 at the end of each of Y5 and Y6. It is expected to report in LE million, the following Accounting Operating Net Losses: 7.84 at the end of Y4, and 1.36 at the end of Y7. Required: (A) For the project of the fifth factory of CUCO, prepare the classified investment costs schedule, calculate the annual depreciation expense for each operating year, calculate the amortization charge of the long-term intangibles at the end of each of the first four years of operating, prepare the debt-service table, prepare a table to compute for each operating year the current operating cash costs exclusive of interest, and compute the income tax at the end of Y1,Y2,Y3,Y5 and Y6. (B) Compute the NCF from the project's view, then determine the pay-back period accordingly. (D) Compute the yearly average of the pre-tax accounting net profit, then compute the accounting rate of return on the total owned capital and the total investment of the project, then discuss the main shortcomings of using it. Determine if each of the following statements is true or false: 14. A maximum degree of inflation prevails when prices of goods are increasing while both; the quantities and the qualities of these goods are increasing over time. A maximum degree of inflation prevails when prices of goods are increasing while both; the quantities and the qualities of these goods are increasing over time. 15. The term "Cost of Capital" in "Project Economics" is different from the term "Capital Costs or Expenditures" in "Financial Accounting". other projects are subjected to performance evaluation processes. 17. The first working capital should cover the requirements of the first cycle of operating of operating. So, it must not be included as a part of the investment costs of any industrial project. 18. The financial feasibility study is separate from the other types of comprehensive feasibility study. 19. The size of the market gap may be equal to the size of market share. 20. "Business Projects" are exposed to approval and refusal, but if they are approved they lead to business firms and/or segment(s) of operating firms. 21. No items of the current operating costs should be considered in the investment costs of industrial projects. 22. The costs of the functional feasibility studies can be avoided or saved just we discover at least one important prohibitive constraint. 23. There is always a standard or typical sequence or specific order to complete the first three functional feasibility studies of every "Comprehensive Feasibility Study". 24. Not all the functional feasibility studies of any "Comprehensive Feasibility Study" should be given the same degree of investigation. 25. The "Pay-Back Period" as a tool to evaluate investment proposals ignores the time value of money but does not ignore the net cash flow after the pay-back period. 26. The "Accounting Rate of Return" does not ignore the time value of money. Colidial feasibility Study for Investment Projects The financial fease (4) The fifth factory of the industrial CUCO the following data and information: (1) The economic life of the project is 8 years starting with one establishment year (1) followed by seven operating years ( Y1,...Y7). (2) The investment costs which will be incurred in the establlshment year are as follows in LE million: 10 Land, 5 Buildings, 25 Machinery, 4 Trucks, 1 Furniture, 10 German Know-how, 2 Other Various Long-term Intangibles, and 3 First Working Capital. The long-term tangible depreciable fixed assets will be equally dopreciated over the seven years of operating, while all of the long-term intangibles will be equally amortized over the first four years of operating. (3) Part of the investment costs will be financed by an owned capital of LE 40 million which will be provided in cash during the establishment year, while the remaining part of the investment costs will be financed by a 14% - interest-loan which will be obtained at the end of the establishment year. This loan will be repaid over five yearly equal installments covering the first five years of operating. At the end of the first year of operating the interest will be LE 2.8 million. After the first year of operating, the annual interest rate will be applied to the declining balance of the loan's principal. (4) No credit sales will be allowed and the current operating cash sales revenue is expected at LE 30 million during each of the first three years of operating and LE 20 million during each of the last four years of operating. In addition to the cash sales, it is expected to collect in cash a net residual value of LE 17.0735 million at the end of the economic life of the project without expecting any capital gains or losses. (5) The annual current operating cash costs shall all be paid when incurred and the expected income statements of the project reveal, in LE million, the following Accounting Operating Net Profits before deducting an income tax of 20\%: 13 at the end of each of Y1 and Y2,9 at the end of Y3, 4 at the end of each of Y5 and Y6. It is expected to report in LE million, the following Accounting Operating Net Losses: 7.84 at the end of Y4, and 1.36 at the end of Y7. Required: (A) For the project of the fifth factory of CUCO, prepare the classified investment costs schedule, calculate the annual depreciation expense for each operating year, calculate the amortization charge of the long-term intangibles at the end of each of the first four years of operating, prepare the debt-service table, prepare a table to compute for each operating year the current operating cash costs exclusive of interest, and compute the income tax at the end of Y1,Y2,Y3,Y5 and Y6. (B) Compute the NCF from the project's view, then determine the pay-back period accordingly. (D) Compute the yearly average of the pre-tax accounting net profit, then compute the accounting rate of return on the total owned capital and the total investment of the project, then discuss the main shortcomings of using it. Determine if each of the following statements is true or false: 14. A maximum degree of inflation prevails when prices of goods are increasing while both; the quantities and the qualities of these goods are increasing over time. A maximum degree of inflation prevails when prices of goods are increasing while both; the quantities and the qualities of these goods are increasing over time. 15. The term "Cost of Capital" in "Project Economics" is different from the term "Capital Costs or Expenditures" in "Financial Accounting". other projects are subjected to performance evaluation processes. 17. The first working capital should cover the requirements of the first cycle of operating of operating. So, it must not be included as a part of the investment costs of any industrial project. 18. The financial feasibility study is separate from the other types of comprehensive feasibility study. 19. The size of the market gap may be equal to the size of market share. 20. "Business Projects" are exposed to approval and refusal, but if they are approved they lead to business firms and/or segment(s) of operating firms. 21. No items of the current operating costs should be considered in the investment costs of industrial projects. 22. The costs of the functional feasibility studies can be avoided or saved just we discover at least one important prohibitive constraint. 23. There is always a standard or typical sequence or specific order to complete the first three functional feasibility studies of every "Comprehensive Feasibility Study". 24. Not all the functional feasibility studies of any "Comprehensive Feasibility Study" should be given the same degree of investigation. 25. The "Pay-Back Period" as a tool to evaluate investment proposals ignores the time value of money but does not ignore the net cash flow after the pay-back period. 26. The "Accounting Rate of Return" does not ignore the time value of money