Reference no: EM132613476

The company Derabel, S.A. is considering buying a new machine for its production process. This project means an initial cost of € 200,000 and the machine is estimated to have a useful life of 5 years. The maximum productive capacity of the machine is 200,000 units per year. However, the first year it is expected that the activity will be 70% of the maximum installed capacity, reaching 100% from the second year.

During the first year, the unit sales price will be € 2.50, the unit variable cost € 1.50 and the fixed annual cost € 60,000, resulting in cumulative yearly increases of 4% in the price of the product sale, 3% on variable costs and 2% on fixed costs.

Also, it is assumed that:

1. The company uses a linear depreciation system, and the residual value of the machine is € 25,000. Besides, the sale value of the machine at the end of its physical life will be € 30,000 that will be charged in cash.
2. The nominal discount rate (kN) used by the company is 8% per year and constant for the planned period.
3. The tax rate that taxes the benefits is 25%. Taxes are paid in the period following their accrual.
4. All production is sold in the reference period.
5. All income and expenses are charged and paid in cash.

Problem 1: With the above data, determine the Net Cash Flows after taxes of the project described above. Calculate the net absolute return.