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must be types not a handwritten. thanks in advance Sun Industries Ltd is involved in the production of materials for refinery services throughout the world.

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must be types not a handwritten. thanks in advance

Sun Industries Ltd is involved in the production of materials for refinery services throughout the world. Currently the company is evaluating a project to produce ancillary products. The project duration is five years. The number of units produced is 40000 in the initial year. Thereafter the number of units produced increases by 15% every year. The inflation is estimated to be 2% per year. The initial investment for the project is estimated to be $5400,000. The annual fixed costs are estimated to be $550,000. The variable cost is $200 per unit. The selling price is $250 per unit. The initial fixed asset is depreciated straight line to zero over the five-year life period. The salvage value of the fixed asset equipment is $ 620,000. The initial investment in working capital is $350,000. Thereafter working capital will be 8 per cent of the annual sales revenues. The required discount rate is 10 per cent and the tax rate is 35 per cent. Estimate the project cash flows and state if you would approve the project by using appropriate capital appraisal techniques. 15 Marks

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