3.Suppose your firm is considering undertaking a project. The firm has forecasted that unit sales will be 5000 units per year at a price of $9500 each. Variable costs are projected to be $350 per unit, and the project is expected to have a 4 year life. Fixed Costs are projected to be $350,000 per year. Additionally, the firm will need to invest $1,125,000 in manufacturing equipment. Assume the equipment is depreciated straight line over its 4 year life. In 4 years, the equipment will be worth half of what it paid for it. An initial investment in NWC of $1,150,000 will be required at time 0. After that NWC will be 25% of sales. Assume that at the end of the project all NWC is recovered.

Assume a tax rate of 34% and the discount rate for this project of 28%.

a.Evaluate whether the firm should undertake this project using NPV analysis. In this problem you are expected to show your work- I need to see how you obtain your free cash flows that you will need to conduct your NPV analysis. Note there are several steps to getting to free cash flows so I need more detail, either a spreadsheet or via calculator calculations.

b.Once you have done this, please explain in no more than a few sentences, how you might conduct a scenario analysis. Suppose you were in a case competition and a judge asked you this question.