Financial Planing

An Nam Corp. intends to import equipment line to produce product A with an initial investment of USD 200,000. Production capacity of the 100,000 products / year. The useful life of equipment is 5 years. At the end of its useful life, the equipment would be sold at USD6,000 and the cost for salvage is USD300. - The company estimates that the variable cost of production accounts for 60% of the selling price. - Working capital: USD 50,000 spent in year 0. From year 1 to year 5, net working capital requirements are expected to equal 10% of company’s sales. - Fixed and annual selling prices are estimated as follows: Year

1

2

3

4

Selling price (USD/product)

4

5

6

5

Selling products to the production capacity

80%

90%

90%

90%

Fixed cost (USD)

17,500 20,000 23,000 20,000

Tax rate is 30%. Cost of capital is 13%. The equipment is depreciated by straight line method. a. What are the project cash flows? b. Is this a good project for the company? Explain your answer by NPV, IRR.