Chantilly Natural Snacks is contemplating an expansion. The finance manager is looking at buying a second machine that would cost $ $70$ comma $000$ and last for $5$years$,$ with no disposal value at the end of that time. Chantilly expects the increase in cash revenues from the expansion at $ $50$ comma $000$ per$$ year, with additional annual cash costs of $ $30$ comma $000.$ Chantilly$\text{'}$s cost of capital is $12\%,$ and the company pays no taxes because of its location in a special economic zone. $1.$

Calculate the net present value and internal rate of return for this investment.

$2.$

Assume the finance manager of Chantilly is unsure about the cash revenues and costs. The revenues could be anywhere from$10\%$ higher to$10\%$ lower than predicted. Assume cash costs are still $ $30$ comma $000$ per year. What are NPV and IRR at the high and low points for$$ revenue?

$3.$

The finance manager thinks that costs will vary with$$ revenues, and if the revenues are$10\%$ higher, the costs will be$7\%$ higher. If the revenues are$10\%$ lower, the costs will be$10\%$ lower. Recalculate the NPV and IRR at the high and low revenue points with this new cost information.

$4.$

The finance manager has decided that the company should earn$2\%$ more than the cost of capital on any project. Recalculate the original NPV in requirement $1$ using the new discount rate and evaluate the investment opportunity.

$5.$

Discuss how the changes in assumptions have affected the decision to expand.