Semicolon is a company located in Germany and is in the business of computers. Over the years, the company has expanded, and is now a reputed player in the market. As a recent MBA graduate, you have been hired by the company in its finance department. One of the major revenue-producing items manufactured by Semicolon has innovative features. The product is a unique item in that it comes in several novel varieties and its sales have been excellent.However, as has been the case across industries, technology changes rapidly, and the current product has limited features in comparison with newer models. Semicolon is considering a project of investing in a plant to make a new product. Some details related to the project are below. All financial figures are expressed in €. Sr Vice president Karl, a second generation entrepreneur, has asked you to calculate the six metrics to evaluate the project. Semicolon can manufacture the new product line by investing in a plant which will be set up as a turn-key plant by a reputed supplier abroad. The total cost of the investment in the plant will be 52,000,000. Six months ago, the company undertook a marketing study to evaluate the product line for which it spent 1,600,000. The study gave valuable pointers about demand, price point and consumer attitudes. The company further spent 320,000 on R&D last year for the new line. The unit sale price of the new line is estimated to be 760. The cost of manufacture would be 320 per unit in variable costs. Fixed costs for the operation are estimated to run 8,200,000 per year. The estimated sales in units for the next 5 years as per the market research firm are: 80,300 94,500 93,300 72,300 62,200 It is believed the market value of the plant in five years will be 8,600,000. The plant will be depreciated on depreciation schedule as per the established accounting policy. The depreciation rates for the 5 years are : 12.00% 23.00% 18.00% 13.00% 8.00% The Net Working Capital (NWC) investment needed for the product line for each year will be 22% of the sales of the next year. After the initial NWC infusion, additional investments in NWC or withdrawals of NWC occur in the following years until the life of the project. The company has a 32% corporate tax rate. As a practice, the company’s required return on new projects is the cost of capital i.e. the finance rate. The reinvestment rate is taken as one percent more than the required return. It plans to finance the project with a debt-equity mix of 20%-80%. It wants to pay 110 as dividend for the first year. The dividends are expected to grow at 7% for the first 4 years from now and thereafter at 4% indefinitely. The risk free rate is 5%, the index return is 13% and the beta of the stock is 1.2. The debt will be bonds with 5 years maturity, with a face value of 1000 paying 11% coupon. Bond investors require 10% return.

CaluculatePAYBACK PERIOD, The required rate of return on equity Dividend of year 6 PV of all dividends in the second growth phase PV of all dividends in the first growth phase Price of the share today

The after tax cost of debt

The market price of the bond

The overall cost of capital of the project

The Profitability Index The NPV

The IRR The payback period

The MIRR The Discounted payback