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.