Save OFF ACY DAF ... Inv_App_Mock_1_Q.xis - Rea Insert Draw Page Layout Formulas Data Review View Automate ? Tell me Calibri (Body) v 4 ab Wrap Text v Genera U 4 Merge & Centre v X V I LL KL project. anagement are considering the launch of a new product and require your assistance to determine the viability of the project. tails of the project are as follows: Initial capital expenditure (new machinery) 3,800,000 Working capital requirement 400,000 Projected life (years Estimated sale proceeds at the end of year 760,000 mm Recovery of working capital at the end of year 360,000 Unit selling price Unit material, labour and overhead cost (excluding depreciation) Production/Sales volume (units): 55,000 H NM 65,000 75,000 Additional information: 100% It is expected that selling prices will increase each year (compound) by: 5% It is expected that costs will increase each year (compound) by: Rate of corporation tax (ignore marginal relief) 20% Annual Investment Allowance (amount allocated) f125,000 Capital allowances can be claimed on the cost of new machinery at the rate of: 18% reducing balance method. An appropriate balancing allowance can be claimed at the end of the project. Cost of capital 12% The initial capital expenditure and working capital will be incurred at the beginning of the first year. All other receipts and payments will incur at the end of each year. The additional working capital does not qualify for capital allowance. Required: a Assess the viability of the project using the NPV method. The IRR should also be calculated. b Calculate the Internal Rate of Return (IRR). c Briefly explain the importance of the choice of the two discount rates used to calculate the IRR. Part 3 Management have expressed concern over the use of alternative techniques and have asked you to explain Question + Select destination and press ENTER or choose PasteOpen recovered workbooks? Your recent changes were saved. Do you want to co H10 X V NPV Investment appraisal Year Initial investment -3,800,000 Residual value 760,000 Working capital 400,000 360,000 Operating cash flow 1 375,000 1,763 450 2,204 468 Cash flow before tax -4,200,000 1,375,000 1,763,450 3,324,468 Taxation -117.700 -244 204 -98.680 Net cash flow -4,200,000 1,375,000 1,645,750 3,080,264 -98,680 Discount factors 12% 1000 0.893 0.797 0.712 0.636 Present value 4.200,000 1,227,679 1,311,982 2,192,471 -62,713 NPV 469,419 Year N Initial investment -3,800,000 Residual value 760,000 Working capital -400,000 360,000 Operating cash flow 1,375,000 1,763,450 2,204,468 Cash flow before tax -4,200,000 1,375,000 1,763,450 3,324,468 o Taxation -117,700 -244,204 -98 680 Net cash flow -4,200,000 1,375,000 1,645,750 3,080,264 -98,680 Discount factors 25% 1.000 0.800 0.640 0.512 0.410 Present value -4.200.000 1,100,000 1,053,280 1,577,095 -40.419 NPV -510.044 Internal Rate of Return IRR 12% 469 419 25% - 12% 469,419 510,044 12% 0.47926123 13% 12% 6.23% 18.23% IRR using fx 17.62%