Life of the project: 5 years Useful life of the new asset 6 years The book value of the existing asset The sale value of the existing asset The book value of the new asset The sale value of the new asset 1 x Sunk Cost 1 x Opportunity Cost 1 x Working Capital item 1 x Financing Cost 4 x Cash flow items over the life of the project Required return: 5% Tax rate: 30% Payback period policy of 4 years Australian clothes company entering UK market The United Kingdom is a diverse market with a population of over 66 million people. The demographic profile of the UK market includes a mix of age groups, with a significant portion of the population falling within the 25-54 age bracket, which represents the prime target demographic for clothing purchases. Additionally, the UK has a relatively high disposable income level, particularly in urban areas like London, Manchester, and Birmingham, which creates a lucrative market for premium and mid-range clothing brands. 1. Marvelous Limited (Your Company) is a well known Clothes manufacturer. There is the opportunity for Our Company to enter into new overseas market that is eager for Australian clothes. To assist in understanding this opportunity i have commissioned a $400,000 report into the viability of a new machine that will allow for higher levels of production 2. The new machine has been valued at $150,000 and a further $30,000 is required for the installation. 3.The machine is expected to meet Your Company's needs for 5 years but the Taxation Office advises the machine has an operational life of 6 years. 3. The new project will require Your Company to locate the new machine on a floor of their building that is currently being rented out to a separate business. The rent that Your Company currently receives is $122,000 a year. 4. There is also an existing machine from a previous project that has a written down value of $6000. You were recently offered $8,000 to sell this asset but you believe that it can also be used in the new project. At the end of this project the machine will be discarded. 5. With increased output Your Company needs additional inventory of $10,000. 6. Revenue related to this project is expected to be $400,000 in the first year and grow by 10% each year for the remainder of the project. 7. Material costs are expected to be 25% of sales in each year. 8. An advertising spend of $8,000 is expected in order to develop the UK market per year. 9. The cost of transport from a clothing factory in Australia to the local UK market is in the region of $6,000 per year. 10. The new machine will be sold at the end of the fifth year for a value of $18,000. Step 1: Performing your Capital Budgeting analysis Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Total Net Cash Flow After Tax Present Value NPV Step 2: Providing your Payback period cash flow analysis Analysis: Step 3: Providing your recommendation and reasons Recommendation : Reason: Reason: Step 4: Providing your group contribution Partner Contribution Name / Student # Name / Student # Name / Student # % % %