2. Cash flows Reliable Electric, a major Ruritanian producer of electrical products, is considering a Page 158 proposal to manufacture a new type of industrial electric motor that would replace most of its existing product line. A research brealthrough has given Reliable a two-year lead on its competitors. The project proposal is summarized in Table 6.4. a. Read the notes to the table carefully. Which entries make sense? Which do not? Why or why not? b. What additional information would you need to construct a version of Table 6.4 that makes sense? Construct such a table and recalculate NPV. Make additional assumptions as necessary: Table 6.4 Cash flows and present value of Reliable Electric's proposed investment (\$ thousands). See @ Problem 2. Wisks: 3. Woniting capitar- Initial invertment in inveatoriez. 6. Orrhoad Madketing and adminintrative conta, atrumed equal to 10% of revenue. 7. Drpracietion. Straght-ine for 10 yearz. 8. Intanzat: Charged ca capital expenditure and nocking capital at Reliable't current borrowing rate of 15%. 9. Inamas Rerenve leti the ruen of research and development, operating ooata, overhead, depreciation, and interent. 10. Tax 30% of income. Howerer, insome is aegative in 2018 . This lon is carried focward and dedasted from taxable inocme in 2020. 11. Nit caminfow Aasumed equal to iocome leaz tax. 12. Nat prasnt vahe NPV of aet cash flow at a 15% divoount saze. 2. Cash flows Reliable Electric, a major Ruritanian producer of electrical products, is considering a Page 158 proposal to manufacture a new type of industrial electric motor that would replace most of its existing product line. A research brealthrough has given Reliable a two-year lead on its competitors. The project proposal is summarized in Table 6.4. a. Read the notes to the table carefully. Which entries make sense? Which do not? Why or why not? b. What additional information would you need to construct a version of Table 6.4 that makes sense? Construct such a table and recalculate NPV. Make additional assumptions as necessary: Table 6.4 Cash flows and present value of Reliable Electric's proposed investment (\$ thousands). See @ Problem 2. Wisks: 3. Woniting capitar- Initial invertment in inveatoriez. 6. Orrhoad Madketing and adminintrative conta, atrumed equal to 10% of revenue. 7. Drpracietion. Straght-ine for 10 yearz. 8. Intanzat: Charged ca capital expenditure and nocking capital at Reliable't current borrowing rate of 15%. 9. Inamas Rerenve leti the ruen of research and development, operating ooata, overhead, depreciation, and interent. 10. Tax 30% of income. Howerer, insome is aegative in 2018 . This lon is carried focward and dedasted from taxable inocme in 2020. 11. Nit caminfow Aasumed equal to iocome leaz tax. 12. Nat prasnt vahe NPV of aet cash flow at a 15% divoount saze