Q5 (20 marks) Show all your work

Trevor Henry was so impressed with your work that you received another promotion and now are the Director of Finance making $195,000 per year. Hank Jones is now the go to person for all complex financial decisions in the company.

The manager wants Hank Jones to calculate the NPV of the Cashflows for the following project

Year 1 Forecasted Unit Sold 46,000

Fixed Costs 310,000

Year 2 85,000

400,000

Year 3 98,000

410,000

Year 4 156,000 400,000

Year 5 225,000 400,000

Year 6 199,000 400,000

This project will run for six years and will require an initial investment of $17,500,000 for new equipment. At the end of the six years, this equipment can be sold for $725,000. The initial working capital required will be Inventory of 2,000,000, Accounts Receivable of $1,000,000 and Accounts Payable of $1,000,000.

The asset class for this equipment is Class 6 (10% CCA rates). You also confirm that the companys tax rate is 37%.

The company forecasts that they can sell their new products at a price of $221, and that the variable cost of each unit sold is $126.

The required rate of return for this project is 33%

Calculate the NPV of the cashflows should the company accept this project? The manager would like to know if the NPV is zero what should the company do and why?

Hank Jones just got a phone call from Navel Stuart, who also graduated from Yorkville with a BBA. Navel Stuarts average was 97%, however everyone knew that Navel was a fraud as he never purchased or read any textbook and cheated and plagiarized on every exam using those terrible web sites.

Navel has now been fired from 3 companys in just two short months. Once his employers find out that he can not do the work, they have little patience for this and quickly let him go.

Navel asks Hank Jones if he can help him find a job, however this will not be possible. Hank Jones advises Naval Stuart to go back to school. This time Navel should purchase the textbooks and work hard to learn the material that the professors are teaching instead of always looking to take short cuts by cheating.