2. Free State Brewery is considering the purchase of a new bottling unit that will cost $100,000. Since the company does not have the full amount now, it will borrow $40,000 of the $100,000 from the bank. This loan is to be paid back in three equal annual payments. The interest rate on the loan is 700 per year, compounded daily. The unit has a salvage value of S 15,000. The new unit will generate annual income and operating expenses as shown on the graph on the next page. For depreciation, this unit is classified as a 3-year property. MACRS depreciation is to be used with the factors provided on the graph. The income tax rate is 35%. You may also assume there is negligible inflation over the 8-year life of this project, Free State Brewery has a MARR of 15%. a) Should this project be recommended? Show your work to justify your answer, and then explain what you did. Another projection assumes that both revenues and costs given above will inflate 3% per year for the life of the project. (This means: Cash flows in Year 2 will be 3% higher than the original values above, cash flows in Year 3 will be inflated another 3% above the value they would have had in Year 1, and so on.) b) Compare your analysis of this case on a constant-dollar, after-tax basis with your answer to the base case (part a, after taxes). Should this project be recommended? NOTE: Two copies of an answer grid are on the following pages. You may use them or prepare your own spreadsheet. Show all of your calculations. Show answers to the nearest dollar -no cents. Balance Sheet for HW 8 Year Income Factor costs 0 0.3333 0.4445 0.1481 0.0741 $43,00016,000 16,000 $40,000 16,000 $38,000 17,000 $38,000 17,000 $17,000 $37000 17,000 $17,000 S42 S37 Balance Sheet for HW8 Year Income Factor costs 0,3333 0.4445 0,1481 0,0741 6,000 S42000 $40,000 $16,000 S38,000 538,000 $17,000 $17 8 | S ! S17.000 $37.000