Capital Budgeting (ICE6, HW6, Ch. 12) 4. Wonderful Snacks, Inc. is considering adding a new line of cookies and bars to its current product offer. The company already paid $250K for a marketing research that provided evidence about the convenience of this type of product at this time. The new line will require an additional investment of $50K in raw materials to produce the cookies. The project's life is 7 years and the firm estimates selling 500K packages at a price of $2 per unit the first year; but this volume is expected to grow at 15% the next two years, then at 10% for the following two years, and finally at 5% for the last two years of the project. The price per unit is expected to grow at the historical average rate of inflation of 3%. The variable costs will amount 20% of sales and the fixed costs will be $850K. The equipment required to produce the cookies and bars will cost $1.1M, and will require an additional $50K to have it delivered and installed. This equipment has an expected useful life of 7 years and it will be depreciated using the MACRS 5-year class life. After seven years the equipment can be sold at a price of $100K. The cost of capital is 15% and the firm's marginal tax rate is 35%. Capital Budgeting (ICE6, HW6, Ch. 12) 4. Wonderful Snacks, Inc. is considering adding a new line of cookies and bars to its current product offer. The company already paid $250K for a marketing research that provided evidence about the convenience of this type of product at this time. The new line will require an additional investment of $50K in raw materials to produce the cookies. The project's life is 7 years and the firm estimates selling 500K packages at a price of $2 per unit the first year; but this volume is expected to grow at 15% the next two years, then at 10% for the following two years, and finally at 5% for the last two years of the project. The price per unit is expected to grow at the historical average rate of inflation of 3%. The variable costs will amount 20% of sales and the fixed costs will be $850K. The equipment required to produce the cookies and bars will cost $1.1M, and will require an additional $50K to have it delivered and installed. This equipment has an expected useful life of 7 years and it will be depreciated using the MACRS 5-year class life. After seven years the equipment can be sold at a price of $100K. The cost of capital is 15% and the firm's marginal tax rate is 35%