Exercise 2) Joe Hendes is the CEO of a company producing medical support products. During a current outbreak of a global virus the demand for hand sanitizer has gone significantly up. Joe Hendes has decided to buy a new machine to cope with the increasing demand. He neec pport to calculate the financial impact from the investment and he has colle. the following information (all figures are incremental to the existing production): The life span of the investment is 9 years. The machine will be sold at the end of year 9 at a price of DKK 314,985 (salvage value) no matter what the book value is. The cost of the machine is DKK 1,100,300 and it is depreciated using the declining balance method with a fixed percentage of 19% per year. The tax rate is 26% and must be paid every year. A negative tax base (earnings before tax) can be used fully in the company's other departments. The virus is expected to be completely extinguished (killed) in the end of year 2. The number of produced and sold hand sanitizers will be 32,000 in the first year and decreasing with 0.50% every year going forward. The sales price of hand sanitizers will be DKK 18 per unit in the first year increasing with 2.50% every year going forward. The variable cost of the production will be 30% of the revenue. There is a fixed cost of DKK 70,000 per year relating to the new machine. The pre-tax discount rate is equal to 12%. A) Calculate the after-tax (with tax) net present value (NPV). Comment on the value. B) Calculate the after-tax (with tax) internal rate of return (IRR). Comment on the value. C) Calculate the after-tax (with tax) discounted payback period (full year and exact). D) Calculate the pre-tax (without tax) net present value. What is the tax effect on net present value? (You have in exercise A, B and C done after-tax (with tax) calculations. Remember, that depreciation becomes irrelevant in the pre-tax (without tax) calculations). Exercise 2) Joe Hendes is the CEO of a company producing medical support products. During a current outbreak of a global virus the demand for hand sanitizer has gone significantly up. Joe Hendes has decided to buy a new machine to cope with the increasing demand. He neec pport to calculate the financial impact from the investment and he has colle. the following information (all figures are incremental to the existing production): The life span of the investment is 9 years. The machine will be sold at the end of year 9 at a price of DKK 314,985 (salvage value) no matter what the book value is. The cost of the machine is DKK 1,100,300 and it is depreciated using the declining balance method with a fixed percentage of 19% per year. The tax rate is 26% and must be paid every year. A negative tax base (earnings before tax) can be used fully in the company's other departments. The virus is expected to be completely extinguished (killed) in the end of year 2. The number of produced and sold hand sanitizers will be 32,000 in the first year and decreasing with 0.50% every year going forward. The sales price of hand sanitizers will be DKK 18 per unit in the first year increasing with 2.50% every year going forward. The variable cost of the production will be 30% of the revenue. There is a fixed cost of DKK 70,000 per year relating to the new machine. The pre-tax discount rate is equal to 12%. A) Calculate the after-tax (with tax) net present value (NPV). Comment on the value. B) Calculate the after-tax (with tax) internal rate of return (IRR). Comment on the value. C) Calculate the after-tax (with tax) discounted payback period (full year and exact). D) Calculate the pre-tax (without tax) net present value. What is the tax effect on net present value? (You have in exercise A, B and C done after-tax (with tax) calculations. Remember, that depreciation becomes irrelevant in the pre-tax (without tax) calculations)