A business consultant approaches Sally from Sallys Apizza. The consultant suggests the following project. Sally could invest her withdrawals from last weeks problem instead in a high powered oven that costs $150,000. That new oven would increase her sales from 45000$ to 60,000$ for each of 5 years. There is straight line depreciation and at the end of year 5 the oven has a resell and book value of $100,000. Hint: Remember the difference between CAPEX and Operations Costs. CAPEX is long term, while Operations Costs are for one project. Here we assume the oven is an Operations Cost. Sally faces a 25% tax rate (irrespective on if Sally takes on the project or not). The relevant discount rate is due to the opportunity cost of money is 3% (remember the banker Frank offered this to her).

a) What is the incremental earning in year 1?

(b) What is the Unlevered Net Income from the project in year 2?

(c) What is the FCF in year 2?

(d) What is the NPV of this project using the FCF method you learned in class?