CSL Limited is considering installing a production line to manufacture the Covid-19 vaccine, which was successfully developed by an Australian university.

The production line costs $15,000,000 to install today and it is projected to have revenue in the first year of $8,000,000. Revenue is projected to decrease at 5% p.a. due to the fall in demand for the products. The operating cost is 20% of annual revenue. The life of the production line is 3 years after which it is expected to be sold for 10% of the original cost. The purchase of the machine is financed 70% through debt which has a cost of 6% p.a. and shareholders expect a 12% p.a. return

a) Set out the project time line complete with cash inflows, outflows and net cash flows by year. [6 marks]

b) Determine the required rate of return of CSL limited to be used as the discount rate in the analysis of this project. [4 marks]

c) What is the Net Present Value (NPV) of this project? Explain if this project should be accepted according to the NPV rule. [4 marks]

d) Given the result to part c), without calculation, identify which of the following statements could be possibly true. Explain why. [6 marks]

• Internal rate of return > WACC
• Internal rate of return < WACC
• Payback period > cut-off point
• Payback period

Show all your workings when calculations are required and round off your FINAL result to TWO decimal places. CSL Limited is considering installing a production line to manufacture the Covid-19 vaccine, which was successfully developed by an Australian university. The production line costs $15,000,000 to install today and it is projected to have revenue in the first year of $8,000,000. Revenue is projected to decrease at 5% p.a. due to the fall in demand for the products. The operating cost is 20% of annual revenue. The life of the production line is 3 years after which it is expected to be sold for 10% of the original cost. The purchase of the machine is financed 70% through debt which has a cost of 6% p.a. and shareholders expect a 12% p.a. return a) Set out the project time line complete with cash inflows, outflows and net cash flows by year. (6 marks) b) Determine the required rate of return of CSL limited to be used as the discount rate in the analysis of this project. (4 marks] c) What is the Net Present Value (NPV) of this project? Explain if this project should be accepted according to the NPV rule. (4 marks) d) Given the result to part c), without calculation, identify which of the following statements could be possibly true. Explain why. [6 marks] Internal rate of return > WACC Internal rate of return < WACC Payback period > cut-off point Payback period WACC Internal rate of return < WACC Payback period > cut-off point Payback period