Noble enterprises is appraising the purchase of new machine that will require initial investment of $2,000,000 and has an estimated useful life of 6 years. The machine will require and additional capital expense of $150,000 to bring the machine in working condition. The working capital investment will be 10 percent of its initial investment at the beginning. In each year manufacturing unit will require additional net working capital so that the cumulative NWC does not exceed 1/6th of its next years forecasted sales. Sales are expected to be $1.2 million in first year with a growth rate of 25 percent in coming two years, this growth rate will drop to 10% in the last 3 years. The fixed cost is expected to be $150,000 in first 3 years and will drop by $20,000 in the last 3 years. Similarly variable cost is projected to be 40 percent of sales in first year, 39% in next two years and 38 % in the last three years. The rate of depreciation in 6 years is as follows. Year 1 2 3 4 5 6

Dep rate 30% 35% 20% 10% 5% 0

The tax rate of Noble Corporation is 35%. The project can be sold/ scraped at $150000 at the end of 6th year. The weighted average cost of capital for this project is 12%. Determine whether this project is profitable on the basis of NPV and IRR analysis. Suppose the Sales revenue varies around 10% above and below their base level. Conduct sensitivity analysis to determine the sensitivity of NPV to changes in sales revenue. Suppose the project appears to be more or less risky than an average project, find its risk adjusted NPV (Low-risk projects are evaluated with a WACC of 10% and high-risk projects at 14 %.) If tax rate increases to 40%, is project still profitable? Suppose that investment finance may be limited, even when a company has attractive investment opportunities available to it, discuss the reasons why a firm cannot pursue this investment opportunity. Note: Requirement 2, 3, 4 and 5, are applicable to base case analysis.