Answer Happy

all years from 0 to 5
(b) The company has developed a 4-year plan for the above project, that will involve the following investments, estimated revenue and estimated costs: • Investment: an initial capital investment of £2.5 million at the start of the project • Revenue: It is expected that 20000 devices can be sold in Year 1 of the project, increasing to 50000 in each of years 2, 3 and 4. The estimated selling price of a single unit will be £50. •Costs: It is estimated that there will be fixed operating costs per year of £0.5million and that the variable cost per unit manufactured will be £15. The capital depreciation rate is 15% and the tax rate is 20%. The company uses a discount rate of 11% in all its project evaluations. It is estimated that at the end of Year 4 the plant can be sold as scrap for £0.2million Draw up a cashflow table for the project using the above data. Be careful to show briefly how you calculate each of the necessary items in the table, for example by writing down relevant formulae. [10 marks] (c) Discuss whether, on the basis of the cashflow table and potential risks, the project should proceed. [4 marks]