A review of a production project of new products has been scheduled at a furniture manufacturing company (or another com

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A review of a production project of new products has been
scheduled at a furniture manufacturing company (or another
company).
A bank loan of 500 thous. € is required to purchase of
a new production line.
Current assets must be increased by 200 thousand €. In the
first year operating costs in the wages of workers will
increase by 200 thousand €, and in subsequent
years – by approximately 10 thousand € per
year. In the first year 250 thousand € will be
spent on production of new products, purchase of raw materials
(sawn timber, paints, furniture fittings, etc.), and the
expenditure will increase annually by 25 thousand €.
Other annual costs will amount to 10 thousand €.
In the first year the sales price will be 100 € per unit of
production, and it will increase by 10 € every year.
The planned sales of new products will reach 7500 units in the
first year, in the second year the company plans to sell 8000
units, 8500 – in the third, 9000 – in the
fourth and 7500 units in the fifth year.
The project will be financed from the company’s own and
borrowed capital. A bank loan of 500 thous. € is required
for the purchase of a new production line. The bank grants a loan
for 5 years at a credit rate of 25 % per annum. Repayment of the
principal amount of the loan is planned in equal installments,
starting from the second year. The accepted required rate of return
is –20 %, taxes and other deductions from
profits – 15 %.
It is necessary to calculate:
- results of investment, economic and financing activities;
- real cash flow and its balance, the balance of the accumulated
real money;
- net present value NPV;
- profitability index PI;
- internal rate of return IRR; - payback period PP.