GMB6000: MANAGERIAL FINANCE QUESTION ONE Printers Inc., is considering investing in a new plant to manufacturer a new generation of printers developed by 5he firm's research and development (R&D) department. 1. Projects useful life: The company expects the plant to operate for five years 2. Capital expenditure: $6million, which includes the construction costs and the costs of machinery and installation. The plant will be built on a parking lot owned by the company 3. Depreciation: For tax purposes ,the building and equipment will be depreciated over ten years using straight –line method 4. Revenue: The Company expects to sell 5,000 printers in year one, 10,000 in year two, and 20,000 thereafter. The printers will be sold at $800 each 5. R&D costs: $1million spent a year ago and this year 6. Overhead costs: 3.75 percent of the project revenues ,as stipulated by the corporate manual 7. Operating costs: Direct and indirect costs are expected to be $500 per unit produced 8. Inventories :The initial investment in raw, working in progress, and finished goods inventories is estimated at $1,500,000 9. Financing cost:10 percent of capital expenditures per year ,as stipulated by the corporate manual 10. Tax rate : 40 percent (includes federal and state taxes) 11. Discount rate: 8 percent .This is printers Inc.'s current borrowing rate. NOW YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 1. Capital expenditure -$6,000 2. Inventories -1,500 3. R&D expenses -1,000 4. Revenue 5. Overhead costs 6. Operating costs 7. Depreciation 8. EBIT 9. EAT 10. Add depreciation 11. Net cash flow -$8,500, 12. Discount rate 8% Required 1. Compute and analyze items (a) through (h) using a Microsoft Excel spreadsheet. a) 5-year projected income statement b) 5-year projected cash flow Calculate c) The Payback period d) Discounted Payback e) The Profitability Index f) The Net Present Value g) The Internal Rate of Return