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4. Answer parts a through e regarding the following investment project. Ms. Phy Nance, a project analyst at DROF Motor Co., would like her project
4. Answer parts a through e regarding the following investment project. Ms. Phy Nance, a project analyst at DROF Motor Co., would like her project included in next year's capital budget. According to her report, the new equipment would cost $131,692 and its projected cash flows would be as follows: (Note: the cost of capital is 13%) Year 1 Year 2 Year 3 Year 4 Year 5 50,000 50,000 55,000 55,000 75,000 a.) What is the NPV calculated by the analyst? If her numbers are correct should you accept the project? b.) Assume that the analyst included shipping and set up costs of $3,692 in her estimation of the cost of the initial investment. Is this procedure correct? Why? c.) Assume that no consideration was given to the fact that the floor space used for this project could have been rented each year for $12,000 per year. How would this affect the calculation? d.) Included in her analysis, Ms. Nance calculated that lighting, heating and air conditioning cost the company $7,500 per year and that the new equipment occupies 40% of the total floor space so she deducted $3,000 per year from the cash flows to reflect overhead costs for the new equipment. Is this deduction correct or should it be reversed? e.) Given your answers to b, c, and d, what is your calculation of Net Present Value for this project and would you include it in next year's capital budget
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