3. As Boeing and other aircraft manufacturers are planning to use more aluminum lithium alloys for their future aircrafts, the American Aluminum Company is considering making a major investment of $150 million ($5 million for land, $45 million for buildings, and $100 million for manufacturing equipment and facilities) to develop a stronger lighter material called aluminum lithium that will make aircraft studier and more fuel-efficient. Aluminum lithium, which has been sold commercially for only a few years as an alternative to composite materials, will likely be the material of choice for the next generation of commercial and military aircraft because it is so much lighter than conventional aluminum allows, which use a combination of copper, nickel, and magnesium to harden aluminum. The firm predicts that aluminum lithium will account for about 5% of structural weight of the average aircraft within 5 years and 10% in 10 years. The proposed plant would have a service life of 12 years, would have a capacity of about 10 million pounds of aluminum lithium, although domestic consumption of the material is expect to be only 3 million pounds during the first four years, 5 million for the next three years, and 8 million for the remaining life of the plant. Aluminum lithium costs $12 per pound to produce and is expected to sell at $17 per pound. The building will be depreciated according to the 39 year MACRS real property class and manufacturing and facilities classified as seven year MACRS. At the end of the project life the land will be worth $8 million, the buildings $30 million, and equipment $10 million. Assuming that the firm's marginal tax rate is 40% and its capital gains tax rate is 40%, develop cash flow and income statements for this project. a. Develop Income and Cash Flow Statements for this proposed project. 6. What is the Internal Rate of Return (IRR)? c. This firm demands an inflation free interest rate of 10% on projects. Based on current inflation trends, should this project be accepted or rejected? 3. As Boeing and other aircraft manufacturers are planning to use more aluminum lithium alloys for their future aircrafts, the American Aluminum Company is considering making a major investment of $150 million ($5 million for land, $45 million for buildings, and $100 million for manufacturing equipment and facilities) to develop a stronger lighter material called aluminum lithium that will make aircraft studier and more fuel-efficient. Aluminum lithium, which has been sold commercially for only a few years as an alternative to composite materials, will likely be the material of choice for the next generation of commercial and military aircraft because it is so much lighter than conventional aluminum allows, which use a combination of copper, nickel, and magnesium to harden aluminum. The firm predicts that aluminum lithium will account for about 5% of structural weight of the average aircraft within 5 years and 10% in 10 years. The proposed plant would have a service life of 12 years, would have a capacity of about 10 million pounds of aluminum lithium, although domestic consumption of the material is expect to be only 3 million pounds during the first four years, 5 million for the next three years, and 8 million for the remaining life of the plant. Aluminum lithium costs $12 per pound to produce and is expected to sell at $17 per pound. The building will be depreciated according to the 39 year MACRS real property class and manufacturing and facilities classified as seven year MACRS. At the end of the project life the land will be worth $8 million, the buildings $30 million, and equipment $10 million. Assuming that the firm's marginal tax rate is 40% and its capital gains tax rate is 40%, develop cash flow and income statements for this project. a. Develop Income and Cash Flow Statements for this proposed project. 6. What is the Internal Rate of Return (IRR)? c. This firm demands an inflation free interest rate of 10% on projects. Based on current inflation trends, should this project be accepted or rejected