NEAR EAST UNIVERSITY

$(1)$

Faculty of Economics and Administrative Sciences

Financial Management II $($EAS $302)$

$2022-2023$ Spring Term

NAME

: $q,$

STUDENT NUMBER : $q,$

DEPARTMENT : $q,$

Prepare a capital Budgeting Desition for a firm in the $23\%$ marginal tax bracket with a $30\%$ of required rate of return or cost of capital. The project we are considering involves the introduction of a new electronic scooter line by Raymobile.

Cost of new plant and equipment:

$$97,000$

Shipping and installation cost:

$$3,000$

UNIT SALES:

$\backslash$table$[[$Year$,$Unit Sold$],[\frac{?}{\text{b}\text{a}\text{r}}(1),5,000],[2,10,000],[3,10,000],[4,7,000],[5,5,000]]$

Sales price per unit: $$25$ per unit in year $1-4,$$$30$ per unit in year $5$

Variable cost per unit: $$11$ per unit

Annual fixed costs: $$50,000$

Working Capital Requirement: There will be an initial working capital requirement of $ $10,000$ just to get production started. Then, for each year, the total investment in Net Working Capital will be equal to $10\%$ of the dollar value of sales for that year. Finally, all working capital is liquidated at the termination of the project at the end of year $5.$

The Depretiation Method: We used the simplified straight$-$line method over $5$ years. It is assumed that the plant and equipment will have no salvage value after $5$ years.

ven the following information,

a$)$ Determine the free cash flows associated with the project,

b$)$ Calculate and comment on the project's NPV$?$

c$)$ Calculate and comment on the project's IRR?

D$)$ calculate abs comment on the payback period's project assuming that presebt time is $3$ years

E$)$ profitability index