6. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Blue Llama Mining: Blue Llama Mining is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales (units) 4,800 5,100 5,000 5,120 Sales price $22.33 $23.45 $23.85 $24.45 Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate $9.45 $10.85 $32,500 $33,450 33% 45% $11.95 $12.00 $34,950 $34,875 15% 7% This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project's four life. Blue Llama Mining pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is including the project's net present value-to the nearest whole dollar.) When using straight-line depreciation, the project's NPV is project's net present value-to the nearest whole dollar.) Using the (Hint: Round each element in your computation- (Hint: Again, round each element in your computation-including the depreciation method will result in the greater NPV for the project. When using accelerated depreciation, the project's net present value (NPV) is including the project's net present value-to the nearest whole dollar.) When using straight-line depreciation, the project's NPV is project's net present value-to the nearest whole dollar.) (Hint: Round each element in your computation- (Hint: Again, round each element in your computation-Including the Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Blue Llama Mining turns it down. How much should Blue Llama Mining reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $500 for each year of the four-year project? $1,163 $931 $1,706 $1,551 Blue Llama Mining spent $1,750.00 on a marketing study to estimate the number of units that it can sell each year. What should Blue Llama Mining do to take this information into account? Increase the NPV of the project $1,750.00. Increase the amount of the Initial Investment by $1,750.00. The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.