Mikligarur ehf., which is a medium-sized production company with extensive operations in many parts of the country, is considering starting a new business that takes

Mikligarður ehf., which is a medium-sized production company with extensive operations in many parts of the country, is considering starting a new business that takes advantage of a new business opportunity. To use it, you have to invest in hardware and devices that cost 1,000 million. ISK but in addition, this equipment needs to be installed, which is estimated to cost 500 million. kr. Estimates assume that the lifetime of the investment is 10 years. After that time, it is assumed that machines and equipment can be sold for 400 million. ISK Sales losses can be offset against the profit for the year. The obsolete stock can be depreciated linearly over 10 years, but not more than about 90% of the obsolete stock. The investment also requires an increase in current assets in the amount of 200 million. ISK which are released again when this activity is stopped. It is estimated that the sales revenue of this new business opportunity will be 4,000 million. ISK in a year. Variable costs (wages and raw materials) are estimated to be 68% of sales revenue. The company's rate of return for this project is 10% and the tax rate is 22%.

a) What is the net cash flow (NCF) at the beginning (ie when t = 0)?

b) What is the operating cash flow (OCF) in the third year of the project, (ie when t = 3)?

c) What is the net cash flow (NCF) in the last year of the project, (ie when t = 10)?

d) What is the internal rate of return (IRR) of this project and subsequently the answer if it is worth investing in this project?