QUESTION $3$

The principal consultant of Madeolo Consult, Vera Fiador, has

requested your assistance in executing an investment appraisal

for a firm that has engaged them for financial consulting

services. The board of the client firm wants some form of

evidence to justify a huge capital outlay to be made by the firm.

Per the information provided, the project in question involves

the setting up of a croissant bakery. The croissant bakery

concept has already undergone test marketing for Gh&$250,000.$

The project document indicates that the current market value of

the proposed investment site, which the client firm already

owns, is Gh $150,000.$ The cost of the commercial baking set$-$up

is Ghc$100,000,$ with an expected required increase of

Gh&$10,000$ in working capital at project initiation. Per the client

firm's assessment, the production $($units of croissants$)$ for the $5-$

year expected lifespan of the baking machine is given as: $5,000,$

$8000,12,000,10,000$ and $6,000.$ In the first year, they hope to

sell at Gh&$20$ per unit, but they expect price to increase by $2\%$

per year thereafter. In terms of production cost, they expect the

first year to be approximately Gh $10$ per unit with costs

increasing at $10\%$ every year thereafter. The machine will be

depreciated at cost$,$ using the following rates for the $5-$year

period: $20\%,32\%,19\mathrm{.}2\%,11\mathrm{.}5\%,$ and $11\mathrm{.}5\%$ in that order

respectively. Baldwin falls in the $34\%$ tax bracket and faces a

cost of capital of $10\%.$ Also, the firm hopes to generate an after$-$

tax salvage value of Gh&$27,100$ on the baking setup at the end.

Required: Compute the relevant cash flows together with the

NPV of this project and advise the board on whether or not they

can proceed.