The company Smart Inc. is a company that makes Dog Shampoo in Sudbury arca. The results have been presented in the financial statement. Sales 16 000 000 Fixed Costs (8 000 000) Variable Costs (12 000 000) Depreciation 3 000 000) Profit (loss). (7 000 000) According to the experts, this loss has been caused by the poor performance of the equipment They suggest to the board of directors to replace the old equipment by new ones. Considering following information, the board of directors asks you to evaluate this project for the company. The new equipment would allow the company to avoid this loss entirely and generate a profit of 2.5 million dollars per year. The purchase and installation of the new equipment require an initial investment of 21 000 000$. The old equipment can be sold at the beginning of project on the market for 2 000 000$ (This amount is considered as an exchange value). The new equipment has a salvage value of 3 million dollars in 10 years (End of the project). The project also requires an additional investment in heavy equipment for the total amount of 4 000 000$ at the end of 5th year. The project also requires an additional investment in new Computers and furniture for a total amount of 800 000$ in the beginning of project. Computers and furniture have to be replaced by new ones after 5 years for the same amount. The do not have any residual value. The company will need to invest also an additional amount of 1200 000s in new inventory at the beginning of project. The amounts of inventory will retum to zero at the end of the project. . At the present time, Smart Inc is renting a warehouse for the annual rent of 50 000$ (paid at the end of year). If the company undertakes the new project, they will need a larger warehouse for the annual rent of 200 000$ (to be paid annually at the End of each year). The project also requires 8 new technicians today with annual salary of 60 000$ for each. Given the performance of new equipment, Smart Inc could lay off 100 employees whose annual salaries is 30 000s. The lay off will oblige the company to pay lay off premiums in the amount of 8000s to each employee which will be tax deductible. The corporate tax rate is at 40%. The new equipment is in the category with a depreciation of 20%, calculated with decreasing (declining) method. The computers and furniture are depreciated by linear method at 10%. Investors require 12% on this type of project. Given this information, answer the following questions: 5. Calculate the maximum price that Smart Inc can afford to invest in the new equipment at the beginning of project in order to keep the project profitable. (That means the additional investment in heavy equipment at the end of 5th year and all other items in the initial investment remain the same). 6. Calculate the Operational Cash Flow (OCF) of the 3rd year of this project. The company Smart Inc. is a company that makes Dog Shampoo in Sudbury arca. The results have been presented in the financial statement. Sales 16 000 000 Fixed Costs (8 000 000) Variable Costs (12 000 000) Depreciation 3 000 000) Profit (loss). (7 000 000) According to the experts, this loss has been caused by the poor performance of the equipment They suggest to the board of directors to replace the old equipment by new ones. Considering following information, the board of directors asks you to evaluate this project for the company. The new equipment would allow the company to avoid this loss entirely and generate a profit of 2.5 million dollars per year. The purchase and installation of the new equipment require an initial investment of 21 000 000$. The old equipment can be sold at the beginning of project on the market for 2 000 000$ (This amount is considered as an exchange value). The new equipment has a salvage value of 3 million dollars in 10 years (End of the project). The project also requires an additional investment in heavy equipment for the total amount of 4 000 000$ at the end of 5th year. The project also requires an additional investment in new Computers and furniture for a total amount of 800 000$ in the beginning of project. Computers and furniture have to be replaced by new ones after 5 years for the same amount. The do not have any residual value. The company will need to invest also an additional amount of 1200 000s in new inventory at the beginning of project. The amounts of inventory will retum to zero at the end of the project. . At the present time, Smart Inc is renting a warehouse for the annual rent of 50 000$ (paid at the end of year). If the company undertakes the new project, they will need a larger warehouse for the annual rent of 200 000$ (to be paid annually at the End of each year). The project also requires 8 new technicians today with annual salary of 60 000$ for each. Given the performance of new equipment, Smart Inc could lay off 100 employees whose annual salaries is 30 000s. The lay off will oblige the company to pay lay off premiums in the amount of 8000s to each employee which will be tax deductible. The corporate tax rate is at 40%. The new equipment is in the category with a depreciation of 20%, calculated with decreasing (declining) method. The computers and furniture are depreciated by linear method at 10%. Investors require 12% on this type of project. Given this information, answer the following questions: 5. Calculate the maximum price that Smart Inc can afford to invest in the new equipment at the beginning of project in order to keep the project profitable. (That means the additional investment in heavy equipment at the end of 5th year and all other items in the initial investment remain the same). 6. Calculate the Operational Cash Flow (OCF) of the 3rd year of this project