Question 13 Consider the following project details: Two Year Manufacturing Project Data Not yet saved Marked out of 1.00 Project life 2 years $8m Flag question Initial investment in equipment Annual depreciation of equipment $2m Number of units produced per year 20,000 Selling price per unit $600 Variable cost per unit $200 Fixed costs per year $0.9m Tax rate 30% Notes 1. Due to the project, current assets (mostly inventory) will grow by $3m initially (at t=0), and then by $0.5m at the end of the first year (t=1). Current liabilities (mostly trade creditors) will increase by $0.9m at time zero, and then by $0.7m at the end of the first year (t=1). At the end of the project, the net working capital accumulated due to the project can be sold for the same price that it was bought. 2. Consulting fees of $3,000 were paid six months ago. This relates directly to the project. 3. The factory building was purchased 40 years ago for $5m and is currently being rented to another company for $0.6m per year. The factory building is fully depreciated for tax purposes. The tenant will need to vacate the factory if this project is undertaken. 4. The equipment will have a book value of $4m at the end of the project for tax purposes. However, the equipment is expected to fetch $4.8 million when it is sold at t=2. Assumption All cash flows occur at the start or end of the year as appropriate, not in the middle or throughout the year. Which of the following statements is NOT correct? O a. The opportunity cost of using the building for this project is $0.6m O b. Net Income at time 1 is $3,567,900 O c. Change in Net Working Capital (ANWC) at time 0 is $2.1m O d. Change in Net Working Capital at time 2 is -$1.9m O e Tax on disposal of equipment at time 2 is $240,000