Question 1 Cement plc are a cement manufacturer and are considering an investment of €2.75 million in a new machine to h

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Question 1 Cement Plc Are A Cement Manufacturer And Are Considering An Investment Of 2 75 Million In A New Machine To H 1 (100.45 KiB) Viewed 21 times

Question 1 Cement plc are a cement manufacturer and are considering an investment of €2.75 million in a new machine to help with the production of two new cements called Fast C and Montana. These quick drying and produce less carbon omissions in line with the requirements of COP26. Ella Turnball, the management accountant has estimated the following sales and associated costs for the four-year period of the project. Sales (tonnes) Fast C Montana Year 1 1,800 1,300 Year 2 2,100 1,600 Year 3 2,800 1,800 Year 4 2,200 1,700 Financial information for the sale and production of Fast C and Montana: Fast C is estimated to sell for €1,425 per tonne, with no inflation. To manufacture one tonne of Fast Cuses 25 kg of raw materials at a cost of €18.00 per kg, with no inflation. Montana is estimated to sell for €1,195 per tonne, with no inflation. To manufacture one tonne of Fast Cuses 26 kg of raw materials at a cost of €12.50 per kg, with no inflation. Cement plc will have estimated that additional fixed costs of €500,000 per annum are needed if they proceed with the new production process. Additional information: i. i. ii. Cement plc can claim capital allowances on the purchase cost of the new machine on a straight-line basis over the four years and must pay a specialist company €800,000 to remove the machine at the end of four years. Local tax in is 25% of taxable cash-flows and are paid a year in arrears. а Working capital requirement of 20% of investment is required in place at the start of the investment and should be released back into the project and the end of year four. Cement plc has a Weighted Average Cost of Capital (WACC) of 9% per year. iii. Required: a) Calculate Net Present Value (NPV) for proposed investment and advise Cement pic if they should proceed with this investment. (16 marks) b) Calculate the Internal Rate of Return (IRR) for this investment project. (4 marks) (Total 20 marks)