Question

Consider a project with the following input data: Projekt Input Data 2.300 Investment in capital equipment (in € thousand) initil inseytnat 5 Useful life of the equipment (in years) Residual value of the equipment at the end of year 5 (in thousand) Investment in raw, auxiliary and operating materials (in € thousand) Estimated sales volume in year 1 (in € thousand) Estimated sales volume in years 2 to 5 (in € thousand) Sales price per unit (E/unit) Variable costs per unit (E/unit) Fixed costs excluding depreciation (in € thousand) Depreciation, linear over useful life (in € thousand) Required rate of return (% p.a.) Tax rate (%) 300 300 500 600 8,00 5,00 800 400 12% 40% a) Would you realize this project? Determine the NPV, the IRR and the profit-annuity. b) Prepare a finance plan under the assumption, showing repayment based on payment surpluses and remaining profit at the end of the period and repayment based on payment surpluses with profits taken out at the beginning of the period. .

Capital budgeting question - please solve without excel. show all the calculations. thanks in advance

a and b are the questions given already below the data

Answer 1

4 5 Notes Time 0 1 2 1 Initial Investment (2,300) operating materials initial investment (300) 2 Investment 3 Residual value 300 500 600 Units Sold 600 600 600 Sales price/ unit 8 8 - Units . Price Total Sales 4,000 4,800 4.800 4,800 4,800 Variable Cost/Unit 5 5 5 5 5 Total Variable Cost (2,500) (3,000) (3,000) (3,000) (3,000) Units Variable Cost Fixed Cost Excluding Depreciation (800) (800) (800) (800) (800) (400) (400) (400) (400) (400) Depreciation 300 600 600 Total Sales-Total Variable cost Fixed Cost Depreciation (240) -PBT Tax rate Profits before Tax (PBT) 600 600 Tax @40 % (120 (240) (240) (240) 4 Profit After Tax 360 180 360 360 360 Cash Flow 1+2+3+4 Discount Factor@ 12 % 180 360 (2,600) 360 360 660 0.80 0.71 0.57 1/(1 Discount Rate)^periods 1 0.89 0.64 374.50 Cash Flow Discount Factor 286.99 Discounted Cash Flow 160.71 256.24 228.79 (2,600.00) Answer a NPV (1,292.77) 8 % Sum of discounted cash flow Answer a Answer a IRR (Cash Flows) IRR No, its not profitable to realize the project

Answer bi Repayment at end of the year Investments (2,300) 360 360 360 180 360 Profit After Tax initial investment 2,300 Loan Loan at beginning of year Interest Expense @6 % ( assmed) 2,300 2,258 2,033 1,795 1,543 (108) (93) Loan at beginning of year Interest Rate @6% (267) Profit from operations Interest Expense (138) (135) (122) (225 Repayment at end of the year (42) (238) (252) 1,276 Loan at beginning of year Repayment Loan at end of year 1,795 1,543 2,300 2.258 2,033 Surplus Answer bii Repayment at beginning of the year 180 360 360 360 360 Profit After Tax & initial investment Investments (2,300) 2,300 Loan Loan at beginning of year before repayment Repayment at beginning of the year Loan at beginning of year after repayment Interest Expense @6 % ( assmed) 2,300 2,300 2,258 2,033 1,795 (42) (225) (238) (252) Surplus 2,258 1,543 Loan at beginning of year before repayment - repayment (93) Loan at beginning of year after repayment *interest Rate 1,543 Loan at beginning of year after repayment - Interest Expense 2,300 2,300 2,033 1,795 (138) (135) (122) (108) Loan at end of year 2,300 2,300 2,258 2,033 1,795 Surplus after tax 42 225 238 252 267