1. You have been asked to assess the long-term risks associated with a project to replace your current gasoline-powered forklifts with electrical models that will be more energy-efficient and cheaper to operate. You brainstorm the risks with your team and come up with the following list.

a. Inflation could increase and lower the value of your savings

b. The cost of gasoline could fall and reduce the savings with switching to electricity

c. Your production operations could decline and reduce the need for those new forklifts

d. Your companys WACC could increase and lower NPV of the project

e. Demand for your product could increase, increasing the number of forklifts you will need

f. The maintenance costs for the new forklifts could be much higher than expected. Group these possible risks as systemic or unsystematic.

B/ Interest rates on loans typically rise as the period of the loan is increased. Explain why this is so. Be sure to address specific risks that affect these loan interest rates.

C/ Your new project involves a initial investment of $212,000 and is expected to generate revenues (Money in) of $32,000 annually for 12 years. Your company has a WACC of 4% which is typically used as the discount rate for NPV calculations. You are concerned, however, because economists are predicting a 3% average inflation rate across the next 15 years. How could you address this risk in calculating the NPV of the project? Show the NPV with and without the inflation risk premium. 1. You have been asked to assess the long-term risks associated with a project to replace your current gasoline-powered forklifts with electrical models that will be more energy efficient and cheaper to operate. You brainstorm the risks with your team and come up with the following list. 1. Inflation could increase and lower the value of your savings 2. The cost of gasoline could fall and reduce the savings with switching to electricity 3. Your production operations could decline and reduce the need for those new forklifts 4. Your companys WACC could increase and lower NPV of the project 5. Demand for your product could increase, increasing the number of forklifts you will need 6. The maintenance costs for the new forklifts could be much higher than expected. Group these possible risks as systemic or unsystemic. 2. Interest rates on loans typically rise as the period of the loan is increased. Explain why this is so. Be sure to address specific risks that affect these loan interest rates. 3. Your new project involves a initial investment of $212,000 and is expected to generate revenues (Money in) of $32,000 annually for 12 years. Your company has a WACC of 4% which is typically used as the discount rate for NPV calculations. You are concerned, however, because economists are predicting a 3% average inflation rate across the next 15 years. How could you address this risk in calculating the NPV of the project? Show the NPV with and without the inflation risk premium.