University work

Finance tutorial

Could you solve the question and all its 4 parts please.(max 4 according to chegg). I will give good feedback if it is well and completely answered. Failure to do so will result in negative feedback. The Internal Rate of Return's answer should be around 15% to 16%. Thanks!

X wants to buy a machinery The machine is expected to cost $1 million. Production and sales of product P are forecast to be as follows:

Production and sales(units): Year 1: 35 000 Year 2: 53 000 Year 3: 75 000 Year 4: 36 000 The selling price of product P (in current price terms) will be $20 per unit, while the variable cost of the product (in current price terms) will be $12 per unit. Selling price inflation is expected to be 4% per year and variable cost inflation is expected to be 5% per year. No increase in existing costs is expected since X has spare capacity in both space and labour terms. Producing and selling product P will call for increased investment in working capital. Analysis of historical levels of working capital within X indicates that at the start of each year, investment in working capital for product P will need to be 7% of sales revenue for that year. X pays tax of 30% per year in the year in which the taxable profit occurs. Liability to tax is reduced by capital allowance on machinery (tax allowable depreciation), which X can claim on a straight line basis over the four-year life of the proposed investment. The new machine is expected to have no scrap value at the end of the four year period. X uses a nominal (money terms) after tax cost of capital of 12% for investment appraisal purposes.

Required: (a) Calculate the Net Present Value.

(b) Calculate the Internal Rate of Return.

(c) Discuss the Modigliani-Miller irrelevancy theorem for corporate capital structure and what assumptions underline the theorem.

(d) Discuss the departure from Modigliani-Miller proposition using the agency cost and information asymmetry theory of capital structure and support your answer by empirical evidences.