Evaluate the Investment Assignment

Hatfield Manufacturing Systems wants to invest in a new plant. The details are as follows:

The new plant will cost TL110m of which TL15m will be the cost of 3D print machines. It is company policy to depreciate the full cost of machines over 10 years. It is proposed that net surplus cash flows from the plant will be repatriated to HMS each year as a dividend. (Note – there is no double taxation of profits). Sales in the first year of operation (2020) are forecast to be TL15,518k and are expected to grow at 12% per year thereafter. Variable production cost will be TL1,467k in 2020 of which 35% will be labour cost. Labour costs are forecast to increase by 2% per year and other variable costs by 1.5% per year. The project also has fixed costs of TL1,144 which will increase at 1% per year. The beta of HMS plc is believed to be 1.60. The normal corporation tax rate in Turkey is 22.0% but the Turkish government is keen to encourage DFI and applies a lower rate of 10% for initial DFI projects. The UK corporate tax rate is currently 19%. Both Turkish and UK corporate taxes are payable at the end of the year in question (you may assume for the purpose of this case that accounting profit and taxable profit are identical). All of the increased production from the Turkish plant will be exported in approximately equal proportions to South Korea, Canada and the EU. Thus the firm will have cash flows denominated in Won, €, and $Ca. The sales revenues given above are the TL equivalent of these cash flows at current exchange rates

The HMS Board have a number of concerns and questions relating to the project. Is the project financially viable? Should they adopt a foreign or home country perspective? Will the project add value to HMS plc? How will exchange rate volatility impact on the value created for HMS? How should the project be financed?

Calculate the NPV, IRR, Accounting Rate of Return, WACC, CAPM, and other data necessary to evaluate the investment. Kindly show all the calculations in Excel. Get Finance homework help today