Problem 1 (in class, cash flow construction and NPV, IRR&PI) Large XYZ Company that specializes in balls production for different games –football, tennis, golf –decided to launch a new project (colored bowling balls production) in 2017. Marketing research (amounted $ 20, 000) came up with the conclusion that new product could gain 10-15% of the market. Marketing agency agreed to payments in installments (two equal payments in two years). ZYX company is a major rival firm which is all-equity financed. It is a mature firm with 3% stable growth. Currently the price of ZYX shares is $ 103, the last dividend paid was $10. Currently the analysis of production efficiency is carrying out. It is supposed to produce the bowling balls in one of the plant buildings of the firm. This building and land are currently not exploited by the firm and their market value is $150, 000 (after tax). Assume the value of the land and building is not going to change within the time. The forecast for the project is the following: Equipment $90,000; delivery and set-up $20,000; expected market value of equipment 5 years after $30,000; book value 5 years after $10,000; Quantity of balls produced within 5 years: 5000, 8000, 12000, 10000 and 6000; Price of a ball in the first year $20, annual price growth 2%; Costs of production are also planned to grow but at a rate of 10% a year starting from $10 per ball in year 1; Corporate tax rate 34% For product to be launched and well as for liquidity purposes the cash reserves of $1500 are
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