VeganBites would like to produce a new range of vegan cheeses. They have spent $50,000 so far researching the idea. The equipment costs $250,000, and an additional $90,000 is needed to install it.

Other information:

• Vegan Bites will have to increase the overdraft by $120,000 (at 15% pa interest) to fund it. Net working capital will be 20% of first year revenue.

• The equipment will be depreciated straight-line to zero over a 5-year life.

• Sales of the new cheese line is expected be $188,000 per year, and additional annual cash operating expenses of $83,000.

• The equipment will be sold for $100,000 after 5 years.

• The company tax rate is 30 per cent, and tax is paid in the year of income.

• The companys cost of capital is 8 per cent.

REQUIRED:

(a) Estimate the initial investment outlay of the project. (b) Estimate the annual after-tax operating cash flow of the project for year 1-4.

(c) Estimate the terminal-year net cash flow (year 5). (d) Calculate the NPV of the project and advise whether the project should be undertaken.