For this question we need to download the financial statements of Coles Group LTD.

Download the
annual income statement, balance sheet and cash flow statement for the last fiscal year (ending 27 June
2021).
One place to find the financial statements is on investing.com, search for the company (ticker code: COL)
and click on Financials. Make sure to get the annual financial statements, not the quarterly. Coles is
considering a new project. It is considering to develop its own budget house brand LED lights bulbs. The
supermarket expects that project will have a four-year life, after which a new generation of bulbs is
expected to come onto the market. The expected revenues from this project will of course only be a
fraction of the total revenues of the supermarket.
The company expects that the revenues of this project in the first year will be equal to 0.01% of Coles
total revenues over the last fiscal year. When customers have installed the light bulbs at home they will
last for many years, so once customers have bought the bulbs, they will not come back to buy
replacements.
For that reason, the revenue from this project is expected to decline by 5% each year.
The operating costs of this project will be a same proportion of the revenues as the company’s other
projects, as can be found on the income statement over the last fiscal year. The project will require Coles
to buy a new machine, at an investment equal to 0.02% of the company’s current net property, plant and
equipment (PPE).
The machine will be depreciated using the straight-line method over the life of the project to 0, although
the salvage value is expected to be 20% of the initial investment.
Before the start of the project the net working capital will have to be adjusted. After that, net working
capital will remain at the same level until the end of the project, when the NWC will be re-adjusted to its
original values before the start of the project.
The inventory requirements are expected to be 45% higher compared to the company’s other products,
which means that the inventory as a proportion of revenues for this project will be 45% higher than the
company average last year.
The accounts payables requirements will be 33% lower than Coles’ other projects, and the accounts
receivable will be same as the other projects.
Coles’ tax rate can be determined by dividing its income taxes by its income before tax in the previous
fiscal year.

Determine the NPV and the IRR of the project, if the cost of capital for the firm is 4.9%.
Determine the free cash flow by setting up the timeline and computation of the free cash flow in separate
columns for each year of the project life. Be sure to make outflows negative and inflows positive.