+ Income subject to taxes - Expenditures subject to taxes = Income before taxes + Adjustments for non-disbursable expenses - Expenses not subject to taxes + Benefits not subject to taxes

= Cash flow

The company "HCK" is analyzing the possibility of entering the market for casual and sports watches, for which it would need to buy a machine made in Switzerland. According to the production manager to make these two products, the machine that would need to be purchased has a cost of US$95,000 and a useful life of 10 years. Additionally, it would require building a new finished product warehouse, the investment in said warehouse would be US$85,000. Casual watch sales are estimated at 550 units for the first year, while sports watch sales are estimated at 675 units for the same period. The sales manager estimates that such sales will grow, in the case of the sports watch, at a rate of 6% until year 5, thereafter the annual growth will be only 1.5% until year 10, while that for the casual watch, sales will grow at a rate of 1% until year 5 and thereafter annual growth will be 2% until year 10. The unit cost of producing the casual watch is US$20 and the unit cost of producing the sports watch is US$15, the selling prices are US$95 for the casual watch and US$80 for the sports watch. Currently the fixed costs of the "HCK" company are US$100,000 and it is estimated that they will reach $150,000 with this new project. According to the financial manager: The machine should be depreciated in 10 years but at that time it will have a market value of US$1,000. In the case of the warehouse, after 10 years it can be dismantled and sold for US$50,000, although it depreciates over 20 years; the necessary working capital will be US$8,000; the company's cost of capital rate is 13% and the tax on profits is 30%. Since you are part of the evaluation team of the Project, you must: a. Prepare a 10-year cash flow assuming that at that time you sell both the machinery and the warehouse (in the conditions described above) and determine if it is financially worthwhile to execute this project. (30 points) b. Determine if it is financially worth executing the project if the bank finances 40% of the initial investment at a rate of 12% per year for a period of 8 years. (30 points) c. Determine if the company "HCK" has the ability to pay to carry out this project. (10 points) d. What would be the price of the sports watch that makes the company's cost of capital rate (minimum acceptable rate of return) equal to the IRR? (5 points) The company "HCK" is analyzing the possibility of entering the market for casual and sports watches, for which it would need to buy a machine made in Switzerland. According to the production manager to make these two products, the machine that would need to be purchased has a cost of US$95,000 and a useful life of 10 years. Additionally, it would require building a new finished product warehouse, the investment in said warehouse would be US$85,000. Casual watch sales are estimated at 550 units for the first year, while sports watch sales are estimated at 675 units for the same period. The sales manager estimates that such sales will grow, in the case of the sports watch, at a rate of 6% until year 5, thereafter the annual growth will be only 1.5% until year 10, while that for the casual watch, sales will grow at a rate of 1% until year 5 and thereafter annual growth will be 2% until year 10. The unit cost of producing the casual watch is US$20 and the unit cost of producing the sports watch is US$15, the selling prices are US$95 for the casual watch and US$80 for the sports watch. Currently the fixed costs of the "HCK" company are US$100,000 and it is estimated that they will reach $150,000 with this new project. According to the financial manager: The machine should be depreciated in 10 years but at that time it will have a market value of US$1,000. In the case of the warehouse, after 10 years it can be dismantled and sold for US$50,000, although it depreciates over 20 years; the necessary working capital will be US$8,000; the company's cost of capital rate is 13% and the tax on profits is 30%. Since you are part of the evaluation team of the Project, you must: a. Prepare a 10-year cash flow assuming that at that time you sell both the machinery and the warehouse (in the conditions described above) and determine if it is financially worthwhile to execute this project. (30 points) b. Determine if it is financially worth executing the project if the bank finances 40% of the initial investment at a rate of 12% per year for a period of 8 years. (30 points) c. Determine if the company "HCK" has the ability to pay to carry out this project. (10 points) d. What would be the price of the sports watch that makes the company's cost of capital rate (minimum acceptable rate of return) equal to the IRR? (5 points)