(4) Finally, assume that the new product line is expected to decrease sales of the firm’s other lines by $50,000 per year. Should this be considered in the analysis? If so, how?

b. Disregard the assumptions in part

a. What is Shrieves’s depreciable basis? What are the annual depreciation expenses?

c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows?

d. Construct annual incremental operating cash flow statements.

e. Estimate the required net working capital for each year and the cash flow due to investments in net working capital.

f. Calculate the after-tax salvage cash flow.

g. Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?

h. What does the term “risk” mean in the context of capital budgeting; to what extent can risk be quantified; and, when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on subjective, judgmental estimates?