Exam Solution June 2023

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Titolo presentazione sottotitolo • Milano, XX mese 20XX Exam FMII – June 2023 Section I – Q1 The following projects is assigned. Consider that: • Pre-Construction, Construction and Corporate Taxes represent a transfer of money across different groups of society. • Contingencies are a figurative cost to foresee uncertain cash outflows. • Employees wages (cost item “Employees”) are not competitive with respect to market standards, that are 15% higher than those reported by the current project. In a competitive market, the willingness to pay is 25% higher than the revenues reported in the current project. • CO2 emissions are a negative externality. No CO2 emission would be generated in case the project is not realized. • The carbon price (€/ton CO2) is equal to 80€/ton CO2 during the CAPEX phase (years 1-3) and equal to 100€/ton CO2 during the OPEX phase (years 4-8). • All costs and revenues items are net of VAT. Based on such information, compute Financial and Economic Cash Flows for the years 1-8, and the Financial and Economic Internal Rate of Return for the project. Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Land Site Purchase 25 000 000.00 € Pre-Construction Tax 10 000 000.00 € Construction Phase Contingency 500 000.00 € 300 000.00 € 200 000.00 € Construction Costs 9 000 000.00 € 12 000 000.00 € 9 000 000.00 € Construction Tax 2 250 000.00 € 3 000 000.00 € 2 250 000.00 € Employees 1 700 000.00 € 2 693 000.00 € 3 725 000.00 € 4 123 000.00 € 4 168 000.00 € 4 411 000.00 € 4 881 000.00 € 4 204 000.00 € Other Operating Costs 1 756 500.00 € 1 611 000.00 € 1 887 000.00 € 1 824 000.00 € 1 516 500.00 € Operating Business Contingency 500 000.00 € 600 000.00 € 550 000.00 € 700 000.00 € 750 000.00 € Corporate Tax 1 000 000.00 € 1 500 000.00 € 1 500 000.00 € 2…