Calculate the viability of the project based on Net Present Value & mention any concerns Q3.Squeeze-a-Grape (SaG) Ltd is a UK company that produces and distributes premium quality fruitjuice on a global scale.Management is in the process of reviewing whether to undertake a strategy of investing in a newFruit Press (during 2022) in a foreign country to meet the growing demand in this new market. Theinfrastructure investment will take all year to be finalised with trading commencing in 2023. Forsecurity reasons this project has been given the code name 'Project Sunrise'. The Investment in2022 is expected to have a resale value of £100,000 at the end of the project in 2030. Theequipment hence has a useful life of 8 years and is depreciated on a straight line basis.The following information has been provided regarding forecasts that are deemed to be conservativeand achievable.Project Sunrise2022 Investment£500,0002023 Cash Inflows£500,000£750,000Cash outflows2024 Cash Inflows£950,000£800,000Cash outflows2025 Cash Inflows£1,050,000£800,000Cash outflows2026 Cash Inflows£1,450,000£950,000Cash outflows2027 Cash Inflows£1,550,000£1,150,000Cash outflows2028 Cash Inflows£1,750,000£1,250,000Cash outflows2029 Cash Inflows£1,850,000Cash outflows£1,350,0002030 Cash Inflows£1,850,000Cash outflows£1,450,0002031 Clean-up Costs£1,000,000Management believe that the project will absorb £500,000 worth of working capital when the projectcommences and this will be released in 2031.Project Sunrise is deemed to be risky and should carry a Required Rate of Return (Discount Rate)at a premium of 50% above the company's current rate of 6.67% p.a, and hence you need to usethis risk adjusted discount rate.

Net present value is defined as the summation of the present value of cash inflows in each period…

Answered: Calculate the viability of the project…

Business

Finance

Calculate the viability of the project based on Net Present Value & mention any concerns

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter15: International Corporate Governance And Control

Section: Chapter Questions

Problem 3QA

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