A company is considering reconfiguring an existing production line to produce humanitarian aid.

To accelerate such development, the company has negotiated a total governmental grant of

$$300,000$ received on two transactions; receipt of $$150,000$ at the beginning as well as at the end of

the first year. Only the first transaction of the grant is payable back with an annual interest rate of

$6\mathrm{.}25\%$ in lump sum $($a single payback amount$)$ paid at the end of the third year. There are two

alternatives $($configurations$)$ to create the production line as shown below. Tax rate is $13\%.$

The company's real Minimum Attractive Rate of Return $($MARR$)$ is $10\mathrm{.}5\%.$ Average annual

inflation rate is $5\mathrm{.}50\%.$ The properties of these investments are provided in the following table $($all

dollar values are estimated in today's dollars$)$:

$[$a$]$ Create the cash flow diagrams of each alternative in current dollars? Please also put on the cash

flow diagram the grant amounts and the payback amount at their correct points in time. $(5$ Marks$)$

$[$b$]$ What is the appropriate interest rate to be used in discounting $($i$.$e$.,$ in calculating NPW of$)$ the

cash flows in $[$a$]?(5$ Marks$)$

$[$c$]$ Find the undepreciated capital cost of the purchased equipment for each alternative at the end of

year $3$ for both projects. What is the disposal tax effect for both alternatives due to selling the asset

at salvage value? $(5$ Marks$)$

$[$d$]$ Assume that: the grants are treated for tax purpose as income, that only the interest component

of the grant payback is tax deductible, that any negative taxable income will create in a tax refund

in the same year, and that the Half$-$year rule applies. Find the annual taxable income and income

taxes for each alternative. $(15$ Marks$)$

$[$e$]$ Calculate the NPW of both alternatives taking into account all revenues, expenses, and all taxes

at a tax rate of $38\%($i$.$e$.,$ for after$-$tax cash flow$).$ Which alternative is economically better?

$(10$ Marks$)$