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You are a senior recruiter at Best People, a recruitment agency. Tasman Pulp Mill Co. (TPM), a longtime client of Best People, is a Launcestonheadquartered

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You are a senior recruiter at Best People, a recruitment agency. Tasman Pulp Mill Co. (TPM), a longtime client of Best People, is a Launcestonheadquartered 8r ASK-listed company that employs more than 1200 people across its diversified business units in Tasmania, where the overall unemployment rate is above 7.5%. Mr. David Smith, the current chief financial officer (CFO) of TPM, has just announced that he will retire in 6 months after 25 years at TPM. The chair of the recruitment committee of the board of directors at TPM asks you to help find the next CFO who will be able to assist the chief executive ofcer (CEO) to continue the success and growth that TPM has seen over the last two decades or so. You indicate to the committee chair that, because TPM continues to expand its operations via either acquiring other businesses or upgrading current facilities, it is critically important the incoming CFO has thorough understanding of project analysis and capital budgeting. You also suggest that the best way to test the candidates' knowledge and practical skills is to ask the candidates to analyze a simulated case in addition to the usual formal interview. Part I (10 marks): The committee chair agrees with you and asks you to come up with a mock case. The information listed below will be given to the candidates. (1) TPM has an after tax cost of capital of 12%; it will pay 9% on any new bank borrowing; the current tax rate is 30%. (2) A new manufacturing technology has just become available. Adopting this new technology requires TPM to upgrade its manufacturing equipment. Compared to the existing technology, the new technology is faster and requires fewer workers but at the same time is less environmentally friendly. (3) The current pulp mill equipment has an annual output of 500,000 air dried tonnes (ADt) of pulp which currently sells at $124 per tonne. In contrast, the new equipment will have an annual output of 600,000 ADt of pulp. (4) The current equipment was purchased three years ago for $49,000,000. It has a book value of $28,000,000 and another four years of life remaining with no salvage value. It can be sold on the secondary market today for $11,000,000. The new equipment costs $75,000,000 (will be funded by bank loans) and is expected to last ve years with an estimated salvage

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