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雷达卡
ABC plc is considering a new project, manufacturing and selling a product named NPAD. The firm has already commissioned a group of consulting engineers to identify the likely revenue and cost streams, the cost of this report of ￡50,000 have been paid. From their report you are able to extract the following information:
Cost of machinery which must be purchased at the beginning of the project
￡600,000 (Note 1)
Projected sales at current prices ￡250,000 per annum (Note 2)
Expected labour costs at current price ￡50,000 per annum (Note 3)
Other operating costs at current prices ￡30,000 per annum (Note 4)
Notes
(1) The project will last for four years, at the end of which the machinery will have a scrap value of ￡30,000. Depreciation each year is 25% of the purchasing price.
(2) Sales will increase at 3% per annual. Sales will occur from day 1 of the project, and cash receipts will occur at the end of the year to which they relate, meaning that the first year sales is expected to be 250,000 x (1+3%); similarly, all production costs will be paid for at the end of the year to which they relate.
(3) Skilled labour is required to operate the machinery and a skill shortage is expected over the next four years. This will result in an annual increase of 10% in the labour costs.
(4) Other operating costs are expected to rise at 5% per annum. They consist of ￡20,000 direct production costs and ￡10,000 overheads. The overheads represent the costs of the unused building which the company owns at present.
(5) The firm maintains a stable debt-to-equity ratio of 1:1. Assume that the risk free rate is 5%, the equity risk premium is 6%, and the company’s equity beta is 1.43. The pre-tax cost of debt of the company is 9.2%.
(6) The company pays tax at a rate of 30% at the end of each year.
(7) Inflation will affect the company’s cash flows starting from year 1 onwards.
Question：
(a) Estimate a suitable cost of equity and after tax Weighted Average Cost of Capital.
(b) Calculate net present value of the project and discuss the viability of the project using a 10% (nominal) after tax discount rate.
(c) Discuss without calculations how sensitivity analysis may help evaluating the viability of this project.
我计算了半天感觉不是很正确，能不能拜托大侠帮忙看下。
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