1. How much of the information is relevant to the decision?

2. How do I calcukate the discounted cash flow

don't have anymore info

The company spends 2.4 million on this project and we want to see if it makes economic sense. An accountant made the table at the end, but without the following info. What can we change? We have the following info: 1. The Machine has a 4-year life. Will supply $200 000 in scrap metal at the end of the project. 2. This type of machine was depreciated over six years on a straight-line basis. 3. Within the "other production expenses were apportioned fixed overheads equivalent to 20 per cent of labour costs. As far as could be seen, none of these overheads was incurred as a result of the proposal. 4. The administrative charge was an apportionment of central fixed overheads. The machine would have sufficient capacity to enable an existing machine to be sold immediately for 200 000 and to create ongoing annual cash benefits of $180 000 from reduced maintenance. 1. Marketing would require $400 000 for additional advertising at the start of the project and a further $80 000 a year for the remainder of the project's life. The sales forecast and advertising effort had been devised with marketing consultants whose invoice for the work of $180 000 had arrived before starting the project 2. If the investment went ahead, it would lead to a reduction in sales value of a competing product of around $600 000 a year. The firm can borrow at around 5 per cent, firm's required return on equity is 13 per cent. Pro-forma Profit Projection for CNC Milling Machine Year 2 3 4 1 4 000 6 000 8 000 6 000 Sales Less costs Materials Opening inventory Purchases 800 400 2 600 -800 600 2 400 800 3 000 -800 3 000 3 600 -600 2 200 3 800 3 000 800 1 200 1 200 800 900 Cost of sales Labour Other production expenses Depreciation Administrative overhead Interest on borrowings to finance the project 800 400 540 920 400 740 1 000 400 740 400 760 220 3 480 220 2 760 220 3 480 220 2 260 Total cost Profit (loss) 4960 (960) 6480 (480) 7280 720 6 160 (160) The company spends 2.4 million on this project and we want to see if it makes economic sense. An accountant made the table at the end, but without the following info. What can we change? We have the following info: 1. The Machine has a 4-year life. Will supply $200 000 in scrap metal at the end of the project. 2. This type of machine was depreciated over six years on a straight-line basis. 3. Within the "other production expenses were apportioned fixed overheads equivalent to 20 per cent of labour costs. As far as could be seen, none of these overheads was incurred as a result of the proposal. 4. The administrative charge was an apportionment of central fixed overheads. The machine would have sufficient capacity to enable an existing machine to be sold immediately for 200 000 and to create ongoing annual cash benefits of $180 000 from reduced maintenance. 1. Marketing would require $400 000 for additional advertising at the start of the project and a further $80 000 a year for the remainder of the project's life. The sales forecast and advertising effort had been devised with marketing consultants whose invoice for the work of $180 000 had arrived before starting the project 2. If the investment went ahead, it would lead to a reduction in sales value of a competing product of around $600 000 a year. The firm can borrow at around 5 per cent, firm's required return on equity is 13 per cent. Pro-forma Profit Projection for CNC Milling Machine Year 2 3 4 1 4 000 6 000 8 000 6 000 Sales Less costs Materials Opening inventory Purchases 800 400 2 600 -800 600 2 400 800 3 000 -800 3 000 3 600 -600 2 200 3 800 3 000 800 1 200 1 200 800 900 Cost of sales Labour Other production expenses Depreciation Administrative overhead Interest on borrowings to finance the project 800 400 540 920 400 740 1 000 400 740 400 760 220 3 480 220 2 760 220 3 480 220 2 260 Total cost Profit (loss) 4960 (960) 6480 (480) 7280 720 6 160 (160)