Project $2$ Calculations must be done in Excel $-$ You must create your own spreadsheet $($do not

copy and paste someone else's$).$ This question should be done using Method $1$ as outlined in

lecture $6($i$.$e$.$ Tax Effects, then Cash Flows then NPV$).$

As the financial advisor to Have Fun Manufacturing you are evaluating the following new investment in a

manufacturing project: $-$p

The project has a useful life of $8$ years.

Land costs $$10m$ and is estimated to have a resale value of $$25m$ at the completion of the project.

Buildings cost $$12m,$ with allowable depreciation of $8\%$ pa reducing balance and a salvage value

of $$10m.$

Equipment costs $$5m,$ with allowable depreciation of $15\%$ pa reducing balance and a salvage value

of $$1m.$ An investment allowance of $20\%$ of the equipment cost is available.

Revenues are expected to be $$13m$ in year one and rise at $5\%$ pa$.$

Cash variable costs are estimated at $40\%$ of revenue.

Cash fixed costs are estimated at $$3m$ pa$.$

The firm has spent $$2m$ on research and development for the project.

Managerial salaries of $$900,000$ will be allocated to the project, but these managerial positions will

be unaffected by the acceptance of the project.

An amount of $$200,000$ has been spent on a feasibility study for the new project.

The project is to be partially financed with a loan of $$14m$ to be repaid annually with equal

instalments at a rate of $3\%$ pa over $8$ years.

Except for initial outlays, assume cash flows occur at the end of each year.

The tax rate is $30\%$ and is payable in the year in which profit is earned.

The after$-$tax required return for the project is $12\%$ pa$.$

Tasks

$($a$)$ Calculate the NPV$.$ Is the project acceptable? Why or why not? Explain and defend your processes,

answer, and calculations clearly.

$($b$)$ Conduct a sensitivity analysis showing how sensitive the project is to revenues, fixed costs and to the

required rate of return. Explain and defend your processes, answer, and calculations clearly. PLEASE PROVIDE THE EXCEL SOLUTION