Delicious Snacks, Inc. is considering adding a new line of candies to its current product line. The company already paid $500,000 for a marketing research study that provided evidence about the demand for this product at this time. The new line will require an additional investment of $100,000 in raw materials at time zero to produce the candies. The project's life is 6 years and the firm estimates sales of 630,000 packages at a price of $5.25 per unit the first year; but this volume is expected to grow at 10% per year for the next two years, 6% per year for the following two years, and finally at 3% during the last year of the project. The price per unit is expected to grow at the historical average rate of inflation of 3% per year. The variable costs will be 40% of sales and the fixed costs will be $525,000. The equipment required to produce the candies will cost $8 million and will require an additional $475,000 to have it delivered and installed. This equipment will be depreciated to zero using the MACRS 7-year class life. After 6 years, the equipment is expected to be sold at a price of $600,000. The cost of capital is 9% and the firm's marginal tax rate is 25%.

a) Calculate the projected after-tax cash flows for years 0-6. If a cell is shaded and you don't need an input for that cell, enter zero or leave blank.

b) Determine the payback period, NPV, PI, IRR, and MIRR of the new line of candies. Should the firm accept or reject the project based on these metrics?

B E F H D Sensitivity % -NM J P Q MACRS 7-Year Schedule Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% 0% $500.000 100,000 630.000 $5.25 10% 6% 3% 3% 40% $525,000 $8.000.000 $475,000 6 $600,000 9% 25% 0% 0% A 1 Delicious Snacks, Inc. 2 Marketing Survey Cost Increase in Raw Materials 4 First Year Number of Units 5 Year 1 Price per Unit 6 Unit Sales Growth Rate years 2-3 7 Unit Sales Growth Rate years 4-5 8 Unit Sales Growth Rate year 6 9 Unit Price Increase (Expected Inflation) 10 Variable Cost% Sales 11 Annual Fixed Costs 12 Cost of Equipment 13 Installation & Delivery Costs 14 Project's Life (Years) 15 Salvage Value of Equipment 16 WACC 17 Marginal Tax Rate 18 19 20 21 22 Initial purchases (depreciable costs) 23 Expected Price per Unit 24 Expected Number of Units 25 Revenue 26 Variable Cost 27 Fixed Cost 28 Depreciation 29 Pre-Tax Cash Flow 30 Taxes 31 Add: Depreciation 32 Annual After-Tax Operating Cash Flow 33 Miscelaneous Expenses (Income) 34 NWC change 35 Capital Spending (Selling) 36 After-Tax Cash Flows 37 Delicious Snacks, Inc.'s Cash Flow Projections Year Year 2 Year 3 Year 0 Year 4 Year 5 Year 6 B C E F G H Delicious Snacks, Inc.'s Cash Flow Projections Year 1 Year 2 Year 3 Year 0 Year 4 Year 5 Year 6 A 19 20 21 22 Initial purchases (depreciable costs) 23 Expected Price per Unit 24 Expected Number of Units 25 Revenue 26 Variable Cost 27 Fixed Cost 28 Depreciation 29 Pre-Tax Cash Flow 30 Taxes 31 Add: Depreciation 32 Annual After-Tax Operating Cash Flow 33 Miscelaneous Expenses (Income) 34 NWC change 35 Capital Spending (Selling) 36 After-Tax Cash Flows 37 38 39 Payback Period 40 Net Present Value (NPV) 41 Profitability Index (PI) 42 Internal Rate of Return (IRR) 43 MIRR 44 45 Accept/reject based on metrics above 46 47