(a) Based on the estimation of the project’s Net Present Value (NPV), provide a recommendation to Asado’s management as to whether this investment should be accepted or rejected. Justify your

(a) Based on the estimation of the project’s Net Present Value (NPV), provide a recommendation to Asado’s management as to whether this investment should be accepted or rejected. Justify your answer. Asados is an Argentinian manufacturer with operations in the t,
famous for its barbeque grills. Asados considers developing a new grill
named Fuego, which is better suited to the barbequing style of British
customers. The company commissioned a feasibility study from a
consulting firm at a cost of Eflfl,flflfl. The projected revenues and costs
associated with launching the new grill Fuego are as follows: 1. Asados will be selling 55,fli]D grills per year at a price of E115 per
grill during four years. Asados’s will be discontinuing Fuego at the end of the 4′” year. The cost is Edi] per grill. The new grill is aimed at a different market niche than the products the company
currently offers, such that no cannibalisation is expected to occur. . They estimate an annual Selling and Marketing overhead cost of E3,3flfl,flflfl to market the product in the British market. . Asados needs to make an initial investment of E5,flflfl,flflfl in a new machine in year D. The new machine has no recovery {salvage}
value and fully depreciates by 15% per year for 4 years (hint: the
problem starts in year [1 with the investment in the machine, sales start in year 1 and end in year 4}. . The machine will be installed in an existing industrial estate owned by the firm, that could be otherwise rented out by E5Dfl,mfl per
year in case the company chooses not to undertake Fuego project. . Working capital requirements: Asados estimates that customers pay on average within 55 days, whereas Asados can pay back their
suppliers within 55 days too. They do not anticipate any cash nor
inventory requirements. {I-lint: Working capital will be required in
year 1 and will be recovered later in year 4}. . Asados intends to finance the project fully with equity {raised in the t}. The EAFM estimation of Asado’s stock Beta is F; = 1.511, with a standard error equal to 33E} 2 11.15. The risk-free rate is
5%, whereas the market premium is Bill. . The corporate tax rate is 35%.

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