Nima Company is investigating the feasibility of manufacturing one of the components needed for its finished product rather than purchasing it from...

Nima Company is investigating the feasibility of manufacturing one of the

components needed for its finished product rather than purchasing it from an

outside supplier. Its present supplier has just announced that it intends to increase

the price from Br500 to Br600 per unit.

The equipment needed to make this product can be purchased for Br3,000,000 and

is expected to have salvage value of Br500,000 at the end of fifth year. It is to be

depreciated using straight line method. The product will be produced in a building

which it is currently renting to an outside firm for Br150,000 per year. Additional

fixed manufacturing costs (excluding depreciation) are estimated to increase by

Br600,000 per year. The variable manufacturing costs of each component will be

Br200 per unit. But it will increase to Br250 per unit starting from beginning of

year 3. The company projects annual needs at 10,000 units for 5-year period.

Average inventory balance will increase by Br250,000 but current liabilities will

decrease by Br50,000 due to manufacturing of this product. There will be no

changes in other current assets. Annual interest payment on debt used to finance

this project will be Br100,000 and is a tax deductible expense. The tax rate is 30%.

Required: Calculate the relevant cash flows of this project for each year