a.A new watch project for the Omegga company has the following data. The estimated sales price of the new watch is $200 and the sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $125 per unit and fixed costs are $135,000 per year. The project requires an initial investment of $178,000, which is depreciated straight-line to zero over the three-year project life. The actual market value of the initial investment at the end of year 3 is $52,000. Initial net working capital investment is $57,000 and NWC will maintain a level equal to 18% of sales each year thereafter. The tax rate is 35% and the required return on the project is 11%. Given the $57,000 initial investment in NWC, what change occurs for NWC during year 1? Explain.

b.New equipment costs $645,000 and is expected to last for four years with no salvage value. During this time, the company will use a 30% CCA rate. The new equipment will save $155,000 annually before taxes. If the company's required rate of return is 12%, determine the PVCCATS of the purchase. Assume the half-year rule applies and a tax rate of 33%.