Required Using Excel Spreadsheet, prepare a full analysis to be presented to the CFO of LEADALL Corp. in evaluating whether the machine FP17 project should be started or not. Your analysis should include the following ? Table of cash flows ? Use of excel formulae where appropriate) ? A written report (1200 words, +/- 10%) outlining your recommendation as to whether LEADALL Corp. should proceed. Justify your recommendations using quantitative and qualitative issues and your analysis of probable risks and benefits relating to the project.

Details of Assignment LEADALL Corporation is an automation company that invests heavily in research and development (R&D) before introducing any new machine, which are mostly cutting edge labour saving alternatives. Manufacturers in the industry are customers of LEADALL Corporation. Recently, LEADALL spent $150,000 to innovate an automatic food processing machine FP17 to reduce wastage; however, the machine FP17 is not fully ready yet for the market due to its occasional imperfection in separating residue and fine output, as reflected in a few random trial runs. Such infrequent failures require long reset time. Nonetheless, due to the pressure of severe competition, LEADALL managers are planning to introduce this machine FP17 in the market before any new offer from competitors. The company is expecting that the final version of reliable machine FP17 would be available for production in five years' time. FIN20014 Financial Management: Individual Assignment Sem-2, 2017 2 | P a g e Required machineries for building the plant to produce machine FP17 can be procured from a local importer at a cost of $6,500,000. LEADALL Corp. has to incur additional transportation cost of $100,000 and installation costs of $400,000; whereas the local importer will pay the import duty of $500,000. The plant would have economic life of seven years and will be depreciated for tax purposes using straight line rate of 15 per cent p.a.; however, at the end of five years, the plant would be transferred (i.e., sold) to another project at a price of $900,000. The Marketing manager of LEADALL Corp has projected that 200 units of the machine FP17 can be sold in the first year and that sales will drop by 20 units every year during the life of the project. Expected sales price would be $40,000 per unit. Variable cost of production is estimated to be 50% of sales revenue. Fixed factory overhead of $150,000 per year would be allocated to this production plant. It is estimated that the project will require an initial investment in stock (inventory) of $400,000. Moreover, $250,000 will be tied up with debtors due to increasing sales; however, it would be partially offset by $150,000 increase in creditors. The project manager has the plan to maintain the same level of net working capital throughout the life of the project (i.e., no further investment in NWC during the project life) before final recovery of NWC at the end of five years. New plant will occupy a portion of factory space that is currently being used for storage purposes in generating monthly net revenue of $5000, but it will discontinue due to installation of the plant. Furthermore, selling machine FP17 will reduce LEADALL's automation consultation fee income by $50,000 per year where associated cost is 80 per cent of such fee income. Firms buying machine FP17 from LEADALL will ultimately replace many of their unskilled and semiskilled workers by a few skilled workers for improving working efficiency. The firm has a 20 per cent weighted average cost of capital (WACC) and is subject to 30% tax rate. The required discounted payback period is 4 years. The Chief Financial Officer (CFO) of LEADALL Corp requires a clear explanation of all relevant issues relating to the machine FP17 project before taking the final decision. The CFO also asks for a detail analysis of cash flows and explanations of results of capital budgeting methods that are usually used in evaluating projects. Furthermore, CFO is interested to know the viability of the project to contribute three per cent of sales revenue every year for ongoing R&D of the company. Required Using Excel Spreadsheet, prepare a full analysis to be presented to the CFO of LEADALL Corp. in evaluating whether the machine FP17 project should be started or not. Your analysis should include the following Table of cash flows Use of excel formulae where appropriate) A written report (1200 words, +/- 10%) outlining your recommendation as to whether LEADALL Corp. should proceed. Justify your recommendations using quantitative and qualitative issues and your analysis of probable risks and benefits relating to the project