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MINI-CASE-M85N11.5 --- Mention this Code for answering this question. SLI3 Company is planning to invest in a project to produce motorboat fuel. The cost of
MINI-CASE-M85N11.5 --- Mention this Code for answering this question. SLI3 Company is planning to invest in a project to produce motorboat fuel. The cost of equipment would be $5.3 million and the installation cost would be $0.26 million. The equipment has an estimated life of five years and a salvage value of $1.7 million. The equipment would be depreciated at 15% per year for tax purposes. Starting production with this equipment requires additional investment of $131,000 for inventories with incremental accounts receivable of $74,000 and accounts payable of $45,000. In order to analyse the prospective demand for this new motorboat fuel in the market, the management has spent $47,000 for marketing purposes. On getting significant positive responses, the management has decided to go for production. Expected sales would be $5 million in the first year and that will grow by 10% each year until the 5th year. The company will change the product line after 5 years. Costs have been estimated to be 42% of sales revenue. If the project is started, the company's regular net earnings of $85,000 per year from technical service would be stopped and annual interest expense will increase from $6,000 to $9.000. It is also expected that the introduction of this motorboat fuel will increase annual sales of the company's parts by $66,000 (and that requires 64% costs on sale). The cost of capital is 11.5 percent and 34% tax rate is applicable. Requirement-A. Prepare a Cash Flow Table for the project (show all digits of the figures, do not display figures in million or thousand). Calculate NPV, IRR, PVI and Discounted Payback Period for the project.
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