Overton plc is considering a project that involves investing in a major new product. lihas already done a marketing survey, which cost 30.000 and predicted the level of sales given below. The product will require an investment of 1,200,000 in new machinery and 200,000 in inventory, both occurring at the start of the project. You are given the following Additional data about the project: .The site to be used for the project was acquired by Overton about 15 years ago for 250.000. A local valuation expert has valued the site currently at 800,000, and Overton plc conservatively expects the value to be the same at the end of the project. If not used for this project, the site would immediately be sold Annual revenue from the project in Fely to be as follows Year 1 2 3 4 5 6 Sales 1300 1300 1800 1200 1200 400 . Variable costs of production will be 30% of sales in years 1 to 3 and 25% inyers 4 106 Fixed costs will be 180,000 per year, excluding depreciation. Existing Head Office overheads of 25,000 per year will be allocated to the project. The Company expects to have to pay 150.000 in repair and maintenance costs to the machinery at the end of year. This amount can be deducted from the profit for the year for tax purposes The machinery will have no value at the end of the project, and will in fact cost 20,000 to dispose of in an environmentally friendly manner. This amount can be deducted from the profit for the final year for tax purposes. The inventory investment will be fully recovered at the end of the project Corporate tax of 20% is charged on each year's profits payable in the year the profits are made. There will be a positive tax cash flow If the company makes a loss in a particular yar, because the loss will lead to less tax being paid by other parts of the company. The site, the inventory and the machinery are all irrelevant for tax purposes. 25% of the company's financing is det at a cost of 4%, and the remainder is equity at cost of 129 Workin muunding numbers where necessary to the nearest whole 5000 Page 4 of 7 NB Discount tables are provided on the next page Routed: Set out and sum the relevant cash flows year by yeur, working la 000. Please present this in as clear and legible form as possible 114 mars! Overton plc is considering a project that involves investing in a major new product. lihas already done a marketing survey, which cost 30.000 and predicted the level of sales given below. The product will require an investment of 1,200,000 in new machinery and 200,000 in inventory, both occurring at the start of the project. You are given the following Additional data about the project: .The site to be used for the project was acquired by Overton about 15 years ago for 250.000. A local valuation expert has valued the site currently at 800,000, and Overton plc conservatively expects the value to be the same at the end of the project. If not used for this project, the site would immediately be sold Annual revenue from the project in Fely to be as follows Year 1 2 3 4 5 6 Sales 1300 1300 1800 1200 1200 400 . Variable costs of production will be 30% of sales in years 1 to 3 and 25% inyers 4 106 Fixed costs will be 180,000 per year, excluding depreciation. Existing Head Office overheads of 25,000 per year will be allocated to the project. The Company expects to have to pay 150.000 in repair and maintenance costs to the machinery at the end of year. This amount can be deducted from the profit for the year for tax purposes The machinery will have no value at the end of the project, and will in fact cost 20,000 to dispose of in an environmentally friendly manner. This amount can be deducted from the profit for the final year for tax purposes. The inventory investment will be fully recovered at the end of the project Corporate tax of 20% is charged on each year's profits payable in the year the profits are made. There will be a positive tax cash flow If the company makes a loss in a particular yar, because the loss will lead to less tax being paid by other parts of the company. The site, the inventory and the machinery are all irrelevant for tax purposes. 25% of the company's financing is det at a cost of 4%, and the remainder is equity at cost of 129 Workin muunding numbers where necessary to the nearest whole 5000 Page 4 of 7 NB Discount tables are provided on the next page Routed: Set out and sum the relevant cash flows year by yeur, working la 000. Please present this in as clear and legible form as possible 114 mars