MANDATORY EXERCISE FOR NEXT CLASS The following is a list of the necessary information for financially evaluating a project

designed to manufacture bottles for the beverage industry. Cost of capital is 16% Working capital requirement is br2m Land lease down payment is br1m Purchasing cost of Machines, tools, is br42m Building construction cost [including design and other civil costs] br85m Preoperational costs including consultants fees, br3m Land clearing and development costs, br4m Organization cost-Govt dues, br1.5m Furniture and Fixture costs, br5m Vehicles, br8m Equipment and office machines, br20m Training & induction of personnel and promotional costs br1m Installation and test run costs, br2.5m Capacity of Factory, when used 100%,is 68m bottles per annum Capacity utilization is 70% for the first two years, 80% for the next two years, 90% for another two years and 95% for the rest of the life of the project Operating cash flow is to be determined on the basis of companys policy, which says sell is to be made for cash only. There will be no inventory held-all produced is sold for cash. Selling price per bottle is br4 for the first 4 years and br5 until the end of projects life. Cash operating costs at full capacity is estimated to be br250m. [It will be proportionally different at different usage of capacity] Profit Tax is exempt for the first three years Land leased will be transferred to a different project at br 3m at end of the project life. Building will also be transferred at an estimated price of br24m at end of projects life. Depreciation on fixed assets will start at br20m, and will decrease by br2m per year thereafter. 75% of working capital will be recovered at the end of life of the project. Profit tax rate is 40% Not tax implication on salvage proceeds.

Instruction: use the above information and answer the following questions. 1. Determine the three cash flow profiles of the project 2. Determine whether the project is financially feasible using NPV and IRR 3. Other things held the same; will the project be feasible when selling price per bottle is decreased by 25% in the first four years and by 20% in the remaining?