Question. $1$

Whiefish

Plr$.$is engaged you as a recent graduate to help them evaluate this investiment.

If the board anes ahead with the prowosed profett below, they would have ty pay aranual hcence payments of $$400,000$ to the government and production would buy in equipment. apccialist enginearing equipment costing f$\mathrm{.}0$m$,$ half of which is payable Immediately, with the remainder due in one year.

Bhiefieh hae alresady esndunted a sumiew af the to which showed a potentiat productive life of four years with its new machine. The survey cost $1250,000$ and is payable immediately.

The teante demartment has produced the following projected profit and loss accounts.

$\backslash$table$[[$Projected profit and loss $(000),$Years$],[1.,2,3,8,5],[$Sales$,0\mathrm{.}00,9000\mathrm{.}00,9500\mathrm{.}00,10000\mathrm{.}00,7000\mathrm{.}00],[$Less: Expenses$],[$Materials and consumables,$560\mathrm{.}00,720\mathrm{.}00,760\mathrm{.}00,800\mathrm{.}00,560\mathrm{.}00],[$Wages$,700\mathrm{.}00,900\mathrm{.}00,950\mathrm{.}00,1000\mathrm{.}00,700\mathrm{.}00],[$Overheads$,1400\mathrm{.}00,1800\mathrm{.}00,1900\mathrm{.}00,200000,1400\mathrm{.}00],[$Depreciation$,0\mathrm{.}00,2500\mathrm{.}00,2500\mathrm{.}00,2500\mathrm{.}00,2500\mathrm{.}00],[$Government licence payment,$400\mathrm{.}00,400\mathrm{.}00,400\mathrm{.}00,400\mathrm{.}00,400\mathrm{.}00],[$Survey costs written$-$off,$250\mathrm{.}00,,,,],[$cofitises$),331000,268000,2990\mathrm{.}00,330000,14406]]$

The following additional information is available:

a$)$ Payments and receipts arise at the year$-$ends unless otherwise stated.

b$)$ The customers of Bluefish Plc demand and recelve a credit period of thr ce months.

c$)$ The suppliars of materials and consumabtes grant a credit period of three months.

d$)$ The overha ads contain an annual charge of $2200,000$ which represents ant apportionment of head office costs. This is an expense which would be incurred whether or not the project proceeds. The remainder of the overheads relates directly to the project.

The new equipment will have a resale valu at the end of the hith your of $21,500,000$

D$)$ During the whole of Year $3,$ a specialised item of machinery will be neded. which is currently belng used by a not her division of Bluefish Plc$.$ This Page $2$ of $9$

division will theretore Inicur hire couts of $4100,000$ for the period the muchinery is ges leat.

thes Throughiok the profect for operational purpoces These wre recoverable at thie end oif the proferet.

The company's cost of capital is $$3$ per cent.

Ignore taration, influtien and aweihmone $.....$

Penuired

Calculthe the nuek present walue of the proposed project:

marks$)$

$1$ai$.$ The board of directions have never been on a finance course and do not understand any of the finance jargon. However; they have usked you to be revod on Prepure a presencarion tor the bourd of diectorg exciainang

$(8$ marks$)$

Total: $25$ marks