7. (15 pt) The X Men Inc. is a toy manufacturer. The company is evaluating whether to invest in a new line of toys ("X-Men 11"). The company just spent $ 10mm in a pilot study. The cost of this pilot study cannot be reversed. The management came up with the following estimates for the X-Men I Project: The manufacturing equipment has to be purchased at the beginning of the project (year 0). The cost of the equipment is $90mm, which will be depreciated to zero using the MACRS 3- year schedule. The equipment's end of life market value is estimated to be $20mm. Sales of X-Men Il toys are projected to be $150mm, 400mm, and $100mm, for years 1, 2, and 3 respectively, cash operating expenses are estimated to be 60% of sales. Net working capital (NWC) needs are $10mm at the beginning of the project (year o). Afterwards, the required NWC amount is 10% of annual sales. At the end of the project i.e. end of year 3), all NWC will be recovered. Instead of taking on the X-Men Il project, the company can simply sell the design to another company for a total of $100mm (after-tax). The company has an average tax rate of 15% and a marginal tax rate of 20%. Its cost of capital is 10% Round your answers to two decimal places in units of Smm (.e. $xx.xx mm). 00 (5 pt) Step 1: OCF. Show the project's sales, cash operating expenses, depreciation, EBIT (earnings before interest and tax), and OCF (operating cash flow) by year. (all figures in $xx.xx mm) Year Sales Cash Oper. Exp. Depreciation EBIT LO OCF (iii) (2 pt) Step 2: Investment and other - NWC. Show cash flows associated with working capital investment by year. Show relevant work in detail under the table. Year (ii) NWC CF (iv) (1 pt) (a) Step 2: Investment and other - Other Are there any other cash flows that should be considered (in addition to those shown in parts - above) when evaluating this project? If yes, show those by year here. Show relevant work in detail under the table. Year (iv) Other CF (v) (3 pt) Step 3: Total CFs and NPV (a) (1 pt) Calculate the total incremental cash flows associated with the project by year based on your answers in parts (1)-(iv). 0 1 2 Year 6) OCF (ii) Equipment CF (iii) NWC CF (iv) Other CF (v) Total CF (6) (2 pt) Use the NPV rule to determine whether the company should invest in the project or not. First show the NPV you calculated and then provide your recommendation (accept/relect). Page 6 of 8 MACRS Schedule Year 3 Years 5 Years 7 Years .3333 .4445 .1481 .0741 ovo i wn - .2000 .3200 .1920 .1 152 .1 152 .1429 .2449 .1749 .1 249 .0893 .0892 .0893 .0446 .0576