Your cousin has created a business specialised in 3-D printing of metal spare parts for repair shops. For the purchase of one machine, she is considering two different models (project A and B). You are to assist her in making the best choice. Assume an investment horizon of 6 years and a required rate of return of 10%. Assume no corporate or business tax on purchase, income or resale. No computation is required for the depreciation of the machine. After talking to technical professionals and the marketing manager, you have gathered the following information: (*) Operating cash flow margin % is equal to operating cash flow divided by sales. Operating cash flows are equal to sales minus all the recurring cash cost associated to production and sales. Operating cash flow margin % is constant over the period. a) Determine the initial cash outlay for both project A and B. b) Compute operating cash flow and cash flow from assets for both projects over the six (6) years c) Compute the Net Present Value of both project A and B d) Compute the Internal Rate of Return of both projects. Explain your result e) Assume both projects A and B are mutually exclusive, discuss and appraise which one has your preference.
Your cousin has created a business specialised in 3-D printing of metal spare parts for repair shops. For the purchase of one machine, she is considering two different models (project A and B). You are to assist her in making the best choice.
Assume an investment horizon of 6 years and a required
(*) Operating cash flow margin % is equal to operating cash flow divided by sales. Operating cash flows are equal to sales minus all the recurring cash cost associated to production and sales. Operating cash flow margin % is constant over the period.
a) Determine the initial cash outlay for both project A and B.
b) Compute operating cash flow and cash flow from assets for both projects over the six (6) years
c) Compute the
d) Compute the
e) Assume both projects A and B are mutually exclusive, discuss and appraise which one has your preference.
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