A company is evaluating a 4-year investment project based on the following information: Equipment cost of $200,000 plus shipping and installation costs of $10,000 and $30,000. The depreciable investment costs will be depreciated by the straight line method over 5 years. The salvage value of the equipment is estimated to be $25,000. Sales generated by the new investment are expected to be 100,000 units per year at the unit price of $2.5 and the unit cost (variable) of $1.6. The investment will increase the existing inventories and the account payable by $25,000 and $5,000 respectively The company is paying income tax at 40 % The opportunity cost (WACC) for the investment is equal to 10%. (a) Determine the net cash flow of the investment. Then compute the net present value (NPV) and the internal rate of return (IRR). (15 marks) (b) Assess the risk of the investment by using scenario analysis. The worst case scenario is when the unit price and the salvage value are lower than the expected by 25%, and the WACC is higher than the expected by 25%. The best case is just the opposite of the worst case. Assume the initial setup is the base case scenario. Further assume that the worst, the best, and the base have 25%, 25%, and 50% chance to occur. Calculate the mean and the standard deviation of the project NVP and IRR. Then find the values of NPV and IRR with the left-tailed probability of 40%. (15 marks) (TOTAL: 30 marks) - END OF PAPER- A company is evaluating a 4-year investment project based on the following information: Equipment cost of $200,000 plus shipping and installation costs of $10,000 and $30,000. The depreciable investment costs will be depreciated by the straight line method over 5 years. The salvage value of the equipment is estimated to be $25,000. Sales generated by the new investment are expected to be 100,000 units per year at the unit price of $2.5 and the unit cost (variable) of $1.6. The investment will increase the existing inventories and the account payable by $25,000 and $5,000 respectively The company is paying income tax at 40 % The opportunity cost (WACC) for the investment is equal to 10%. (a) Determine the net cash flow of the investment. Then compute the net present value (NPV) and the internal rate of return (IRR). (15 marks) (b) Assess the risk of the investment by using scenario analysis. The worst case scenario is when the unit price and the salvage value are lower than the expected by 25%, and the WACC is higher than the expected by 25%. The best case is just the opposite of the worst case. Assume the initial setup is the base case scenario. Further assume that the worst, the best, and the base have 25%, 25%, and 50% chance to occur. Calculate the mean and the standard deviation of the project NVP and IRR. Then find the values of NPV and IRR with the left-tailed probability of 40%. (15 marks) (TOTAL: 30 marks) - END OF PAPER