You are considering the possibility of starting a construction materials business, since you have land worth $$200,000\mathrm{.}00$ and you have machinery, which you are going to sell today for $$75,000\mathrm{.}00$ because it is already fully depreciated. To start your business you want to start with everything, so you are going to invest in the purchase of a new machine, which will cost you $$220,000\mathrm{.}00$ and will depreciate at an accelerated rate in $7$ years. You will have to invest $$25,000\mathrm{.}00$ in Net Working Capital $($lime$,$ sand, cement, rebar, etc.$)$ at the beginning $($Year $0)$ and then you will invest as follows:

Net Working Capital Investment

Year $1$

$13\%$ of sales

Year $2$

$14\%$ of sales

Year $3$

$15\%$ of sales

Year $4$

$15\%$ of sales

Year $5$

$17\%$ of sales

Year $6$

$16\%$ of sales

Year $7$

$18\%$ of sales

Year $8$

$19\%$ of sales

Year $9$

$20\%$ of sales

Year $10$

$20\%$ of sales

The new machine will have a salvage value of $$60,000\mathrm{.}000$ at the end of $10$ years. With this new business you expect to generate income $($sales$)$ of $$88,000\mathrm{.}00$ the first year and thereafter sales will increase by the same percentage that you invest in Net Working Capital $($Table above$).$ Variable Costs are $$35,000\mathrm{.}00$ the first year and will increase each year according to the annual inflation rate $(7\mathrm{.}82).$ Your Fixed Costs will be $$8,000\mathrm{.}00.$ The tax rate is $33\%$ and the cost of capital will be $15\%.$

Should you go into business?

a$)$ Calculate the Net Investment

b$)$ Calculate the cash flows

c$)$ Calculate the NPV

d$)$ Calculate the IRR

e$)$ Calculate the IR

f$)$ Calculate the DRP

g$)$ Interpret each of your results and determine why you do carry out your investment project.