NPV Profile

Discount Rate $(\%)$

$$BRIGHT RAY Limited is an automation firm that invests much in research and development $($R&D$)$ before releasing a new equipment, which is typically designed to save employees time. BRIGHT RAY Limited serves the manufacturing industry as a supplier. BRIGHT RAY recently spent $$280,000$ developing BR$1,$ an autonomous food preparation system. However, a few random test runs revealed that BR$1$ is not yet market$-$ready because it has difficulty distinguishing residue from fine output. Such uncommon failures need a long restart time. During the reset phase, companies that purchase and install BR$1$ may lose a significant amount of output. Nonetheless, given the level of rivalry, BRIGHT RAY officials want to release the BR$1$ machine before any new competitors do$.$

A local importer will sell BRIGHT RAY the equipment required to construct the plant that will manufacture machine BR$1$ for $$6,250,000.$ BRIGHT RAY Limited must pay an additional $$750,000$ in installation fees. The plant's useful life would be five years, and it would be depreciated at a straight$-$line rate of $20\%$ each year.

According to the marketing director at BRIGHT RAY Limited, $300$ units of the BR$1$ machine can be sold in the first year, with sales dropping by $25$ units each year for the remainder of the project. The projected price per unit is $$50,000.$ As long as at least $200$ units are produced each year, the variable cost of production is predicted to equal $60\%$ of sales revenue. The fixed costs of operating this factory would be $$1,800,000$ per year.

BR$1$ will most likely require an initial inventory of $$260,000.$ Also, as sales increase, $$210,000$ will be locked up in debtors accounts, but this will be substantially offset by a $$70,000$ increase in accounts payable. The project management intends to maintain the same level of net working capital $($NWC$)$ throughout the project's duration. This indicates that there will be no fresh investments in NWC during the

project's lifetime. After four years, NWC will be recovered. The new plant will be located in a manufacturing space that is currently utilised for storage. This yields a net income of $$10,000$ a month, however it will be discontinued due to the new plant. Additionally, when BRIGHT RAY sells machine BR$1,$ its annual income from automation consulting fees will decrease by $$30,000.$ At the conclusion of this project, the plant would be transferred $($sold$)$ to another project for a price of $$700,000.$

If a firm purchases BRIGHT RAY's BR$1$ machine, it will eventually replace many of its unskilled and semi$-$skilled employees with a few skilled ones in order to increase production efficiency. An Association

of Labour Unions is opposed to firms installing BR$1$ because it will result in many people losing their employment since they will be unable to do their duties. In response to the Association's worries,

BRIGHT RAY's management has identified another project that would manufacture semi$-$automatic machines BR$2$ and will require both semi$-$skilled and skilled people. The initial total investment for this

BR$2$ project would exceed the cost of BR$1$ project by $10\%,$ and the predicted future cash flows $($after all adjustments$)$ for this five$-$year project would be as follows:

Year$-1$: $$2,100,000$; Year$-2$: $$2,600,000$; Year$-3$: $$3,500,000$; Year$-4$: $$3,300,000$; Year$-5$: $$2,750,000$

The company's weighted average cost of capital $($WACC$),$ which has fluctuated between $14\%$ and $18\%$ in recent years, is utilised to determine the required rate of return. Management has chosen to utilise both rates in evaluating this project. Companies are subject to a tax rate of $30\%.$ Based on projections, the estimated payback period for BRIGHT RAY is $3\mathrm{.}5$ years.

Prior to reaching a final decision during the upcoming meeting, the Managing Director $($MD$)$ of BRIGHT RAY Limited is seeking a comprehensive explanation of the key components of the BR$1$ project. The MD is requesting a formal report that includes a thorough analysis of cash flows and clear explanations of the results, utilising appropriate capital budgeting procedures commonly employed for project evaluation.

In addition, the MD is interested in examining the specific details of the comparison between the BR$1$ and BR$2$ projects. This analysis will involve evaluating the results of appropriate capital budgeting methods, considering both a $14\%$ and $18\%$ required rate, determining the crossover rate, and taking into account all relevant factors that can contribute to making a final decision. These findings will be presented in a separate section of the report.

Follow the picture of the template given to complete the cash flow tabel and write out all the formula for the calculation in excel. Thank you very much.