A production Enterprise is considering introduction of a new product into the market. Detailed calculations of expected revenues are presented in the table below: Thousands euro Revenues Closing balance Account payables Year 1 Inventory of production materials Inventory of finished products 700 The firm's analysts estimated that investment outlays to start the production (investment, research and development) would amount to EUR 650 thousand. Average variable costs account for about 55% of revenues. Depreciation of investment outlays amounts to 33,33% annually. After the 3rd year, the fixed assets are expected to have a market value of 100 thousand Euro (despite being fully depreciated). The performed analysis suggests that implementation of the project would cause overheads at the company to rise by ca. EUR 100 thousand annually. The table below presents forecast for the share of liabilities, production materials and stock in revenues: Year 1 14% 12% Year 2 8% 800 Year 2 14% 11% Year 3 8% 900 Year 3 12% 11% 9% a. Please estimate net present value of the project taking into consideration that the discount rate (WACC) equals 11%. Income tax rate equals 19%. b. Calculate the IRR and payback period of the project.
A production Enterprise is considering introduction of a new product into the market. Detailed calculations of expected revenues are presented in the table below: Thousands euro Revenues Closing balance Account payables Year 1 Inventory of production materials Inventory of finished products 700 The firm's analysts estimated that investment outlays to start the production (investment, research and development) would amount to EUR 650 thousand.
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