Top-Spin was one of the first major tennis racquet producers to introduce graphite in its racquets. This allowed Top-Spin to produce some of the lightest and stiffest racquets on the market. However, new carbon fibre-impregnated racquets are even more lightweight and more rigid than their graphite counterparts. Nevertheless, TopSpin has always been an innovator in the tennis racquet industry and wants to stay that way. As the manager of Top-Spin, you identify that if you replace one of its graphiteforming machines with a carbon-fibre weaving machine, the business can start delivering carbon-fibre racquets as early as June 2023. Seeking a quote from the suppliers, your accountant estimates that the company can purchase a carbon-fibre weaving machine with a useful life of five years for a net after-tax initial investment of $379100. which is calculated as follows: The machine is believed to have no terminal disposal value after five years; however, the $9,000 in working capital is returned at the end of year five. Managers estimate that by introducing carbon fibre-impregnated racquets, operating cash inflows (cash revenues minus cash operating costs) will increase by $100,000 (after tax) in the first To simplify the analysis, suppose that all cash flows occur at the end of each year. Note that cash flow at the end of year five also increases by $100,000,$91000 in operating cash inflows and $9000 in working capital. The discount factor is 8% per year. Required : a) Use the given information to compute the NPV of the project by completing the uahle helow. (20 Marks) b) What is the function of the Internal Rate of Return (IRR)? Calculate the IRR of the project using the information above. (15 Marks) c) Determine the payback period for the project. Outline the main disadvantages of using the approach in evaluating the project. (15 Marks) Top-Spin was one of the first major tennis racquet producers to introduce graphite in its racquets. This allowed Top-Spin to produce some of the lightest and stiffest racquets on the market. However, new carbon fibre-impregnated racquets are even more lightweight and more rigid than their graphite counterparts. Nevertheless, TopSpin has always been an innovator in the tennis racquet industry and wants to stay that way. As the manager of Top-Spin, you identify that if you replace one of its graphiteforming machines with a carbon-fibre weaving machine, the business can start delivering carbon-fibre racquets as early as June 2023. Seeking a quote from the suppliers, your accountant estimates that the company can purchase a carbon-fibre weaving machine with a useful life of five years for a net after-tax initial investment of $379100. which is calculated as follows: The machine is believed to have no terminal disposal value after five years; however, the $9,000 in working capital is returned at the end of year five. Managers estimate that by introducing carbon fibre-impregnated racquets, operating cash inflows (cash revenues minus cash operating costs) will increase by $100,000 (after tax) in the first To simplify the analysis, suppose that all cash flows occur at the end of each year. Note that cash flow at the end of year five also increases by $100,000,$91000 in operating cash inflows and $9000 in working capital. The discount factor is 8% per year. Required : a) Use the given information to compute the NPV of the project by completing the uahle helow. (20 Marks) b) What is the function of the Internal Rate of Return (IRR)? Calculate the IRR of the project using the information above. (15 Marks) c) Determine the payback period for the project. Outline the main disadvantages of using the approach in evaluating the project. (15 Marks)
