13. (24 points) You and your chemistry major roommate have invented a smart pill for graduate students. Students who take the pill are able to stay awake non-stop for up to 10 days, retain everything they read and study, and feel perfectly calm and awake during exams. You expect sales to last three years, after which competition is expected to erode your competitive advantage. If you proceed, you expect to sell $200,000 worth of product in the first year, but declining 25% in years two and three (i.e., $200K at the end of year 1, then down 25% in year two, then down another 25% in year three), due to competition. COGS is 35% of sales. You plan to spend $5,000 in marketing in year one, nothing in year 2, and another $5,000 in year 3. Your roommate tells you that she'll need $150,000 in lab equipment that you will depreciate straight-line over a 5-year useful life down to $0. Your roommate also assures you that you will easily be able to sell the lab equipment at the end of three years for $100,000 to her high school chemistry teacher who lives in New Mexico. Regarding working capital requirements, you believe that you'll have to put $10,000 into the business now (at to) and that once things are rolling NWC will run at 10% of sales. You won't get all the working capital back until one the close of business (i.e., NWC will drop to 0 at t4). year after This is a risky business, and the discount rate is 25%. You intend to obey the tax laws and pay taxes at the standard corporate rate of 35%. Assume that all cash flows EXCEPT for the equipment purchase and the initial working capital injection occur at year end. Those two expenditures occur immediately. Build your EBIT and FCF table on the next page, and do any additional necessary calculations on the next page (as space allows) and the page after that. Please write your answers for the project profitability and viability measurements listed on this page below. I will grade your work on the following pages, but I want to see these answers here (and you will lose points if you don't put them here.) Please present your work on the following pages clearly and logically; that will maximize your chance at receiving partial credit. als NPV@ 25% IRR Should you do the project? Page 8 of 10 (yes or no)