Rainbow company is a company that produces plush toys. The company thinks that the business of producing plastic toys will be profitable. For this purpose, he conducted a market research costing 30,000 TL. As a result of this research, Rainbow evaluated the investment. A new machine is needed to produce new products. Plastic toys will be produced in a facility owned by the company in Bursa. This facility can be sold for 150,000 TL after taxes are deducted.

The machine cost is 200,000 TL and its market value will be 30,000 TL at the end of 5 years. (Normal depreciation, useful life 5 years) Planned production for 5 years is 5000 units, 8000 units, 12000 units, 10000 units and 6000 units. In the first year, toys will be sold for 30 TL each. Prices will increase by 2% annually. The unit cost of toys is 10 TL in the first year and will increase by 10% annually. The corporate tax rate is 20%.

Net working capital is the difference between current assets and short-term foreign resources. Rainbow thinks it needs to invest in working capital. Like all other manufacturing companies, it must purchase raw materials before the production process, which means investing in raw material stocks. Must keep cash for unforeseen expenses. Additionally, their receivables will increase as a result of credit sales.

A net working capital of 10,000 TL is needed in the year the investment is made. The total net working capital figure will be 10,000 TL in the 1st Year, 16320 in the 2nd Year, 24970 TL in the 3rd Year, 21,200 TL in the 4th Year, and will decrease to 0 in the last year.

The company's target capital structure consists of 40% debt and 60% equity. The company will issue a 5-year maturity bond with a nominal value of 100 TL for the debt, the coupon interest rate is 20%. The bonds will be sold for 95 TL. The bond issuance cost is 5TL per bond. The company must issue new shares to meet its equity needs. The company paid a dividend of 2 TL this year. Dividends are expected to increase by 8% each year. The share price is 12 TL. Issuance cost per share is 2 TL.

Find this project's cash flows, weighted average cost of capital, internal rate of return, and net present value. Should this project be accepted? From where?

Draw the NPV profile chart.

Tip: When calculating the investment in net working capital each year, do not forget to take the change between that year and the previous year.