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Jonken co is a private company based in Kitwe. The company is considering investing into a project that will be producing belts to be sold to the mining companies. The project will demand that the company buys a special equipment that costs K$800,000$ from South Africa to replace the old machine which have a book value of K$100,000.$ The old machine has one year of economic life with expected scrap value of zero. The equipment have expected useful life of $5$ years with K$120,000$ scrap value. Jonken uses straight line method of depreciation to depreciate its Non$-$Current Assets and claims tax allowances at $25\%$ per year reducing balance. Installations costs of K$100,000$ will also be incurred before the project starts but will be paid for next year when the equipment starts operating.

The belts are expected to cost the company K$16$ each to take to the market and will be sold for K$24$ each. It is estimated that the cost per belt will be increasing by $5\%$ compounded each year and selling price by $6\%$ compounded each year.

The company expects to sell $90000$ units in the first year,rising to $120000$ in year $2,$ and $80000$ in year $3,$ before rising back to $120000$ for each of years $4$ and $5.$

At the beginning of the project, it is expected that there will be K$40000$ of inventory required. At the same time accounts receivables will be K$50000$ and accounts payable of K$25000.$ The net working capital will be maintained at $3\%$ of total sales revenue per year until the end of the project.

To sell the projected units, the company will need to advertise and the advertising costs are estimated at K$40,000$ in the first year and followed by K$45,000$ per year thereafter.

The company faces a tax rate of $30\%.$Tax is paid one year in arrears. The cost of capital is expected to remain at $11\%.$

Required:

a$.$ Calculate the initial investment outlay of the project $(3$ Marks$)$

b$.$ Calculate the terminal cash flow for the project. $(2$ marks$)$

c$.$Lay out the relevant cash flows for the project $(15$ Marks$)$

d$.$ Calculate Net Present Value $($NPV$)$ for the project and advise on its acceptability

$(5$ Marks$)$

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