Aerocomp is considering investing into Swiss Ventures Inc. The details of the project are as follows:

Capital outlays on the project are expected to occur over the next two years, and the project, which will produce widgets for the wireless communication business, will be a unique entity to the Swiss Ventures family of projects. An immediate outlay of $$600,000$ will be required for the land to house the specialized building that will be constructed over the next year. Final payment on the building will amount to $$1\mathrm{.}1$ million inclusive and will be due in exactly one year. Payment for the machinery to produce the widgets will amount to $$175,000$ and will be due after the initial test period, which will take to the end of the second year.

After the testing period, cash flows will begin in the third year. It is assumed that the revenues and expenses will be acknowledged at the end of each year. Beginning in the third year, revenues are expected to amount to $$875,000$ until the $12$th year. Expenses are projected at $$325,000$ to the $12$th year from the third year. These estimates are the averages of estimates obtained from the marketing staff and the production department. The expected values have been determined through preliminary work by Aerocomp.

In $12$ years everything will end, as the market for the widget will be gone. The building will be scrapped for $$225,000,$ and the machinery will be sold for $$50,000.$ It is anticipated that the land will appreciate in value by $9$ percent a year

The following additional information is available: CCA rate: building $4\%$

machinery $30\%$

Corporate tax rate $30\%$

Cost of capital $15\%$

Capital gain $50\%$ of gain taxable

REQUIREED: Norman Windsor, CPA, has recently joined Aerocomp as Senior Financial Analyst. It is Friday morning. John met Norman while he was buying the morning coffee before he starts his work for the day. John tells him about the company plan and shares with him three proposals that the Board is considering. The Board members do not have any experience in financial analysis. Before the Board decides on the projects, John asks Norman to prepare the financial viability of three alternative investments. John asks Norman to do the following:

a$.$ Identify cash inflows and cash outflows for each project, and how these cash flows will be treated in the calculations of financial indicators.

b$.$ Calculate for each project the four indicators of financial viability, e$.$g$.,$

a$.$ Net Present Value

b$.$ IRR

c$.$ Payback period

and document them in a table.

c$.$ John emphasizes the role of sensitivity in evaluating these proposals. John asks Norman to increase$/$ decrease the key cash inflows $($mainly the revenues or cost savings$)$ by $10\%,$ and analyze the impact on four indicators of financial viability $($NPV$,$ IRR, Payback Period, and Profitability Index$).$ Document the results in a table.

d$.$ Analyze your results from a$,$ b and c and make recommendations using a brief report to the CEO. You must include in your analysis any qualitative factors that might play an important role in making the final decision.