Describe your entire process $($timeline$,$ mathematical formulas and results$),$ not just only the answers. All cash flows considered in this exercise occur at the end of the indicated year. We are at the end of year zero and are considering investing in the company InnovexInc, which is subject to a corporate tax rate of $30\%.$ InnovexInc wants to commercialize a new service called Innovative, after completing a market study that cost $$75,000.$

To complete the project, InnovexInc will need an investment today to purchase a machine worth $$125,000,$ with a useful life of $15$ years. The purchase is amortized linearly, starting from the first year of operation.

Additionally, InnovexInc will need an additional $$15,000$ in maintenance costs to maintain the operational capacity of the machine, starting from the fourth year, and every year thereafter. Consequently, the machine can be used indefinitely beyond its useful life. This investment will be fully amortized during the following year. For example, the investment in year $5$ will be fully amortized during the sixth year, the investment in year $6$ during the seventh year, and so on $($Even if it doesn't make sense from an accounting perspective, follow the instructions$).$

Innovative's sales projections give a revenue of $$32,500$ in year $1.$ Revenue will increase by $10\%$ until year $5$ inclusive and by $7\mathrm{.}5\%$ thereafter until year $10$ inclusive. The cost of goods sold is $45\%$ of sales, and this margin applies to all products of the company. Additionally, $$3,500$ in administrative expenses occur each year, starting from year $1.$

Another InnovexInc service, called Innoplant, will experience a reduction in sales after the commercialization of Innovative. The sales decrease for Innoplant will be $$4,500$ per year and will only occur for the first five years.

Finally, for the Innovative project, InnovexInc will need an additional investment in working capital of $$5,000$ today. Working capital needs will increase in line with revenues.

We assume that the total cash flow of year $10$ will repeat indefinitely with a growth of $3\%.$

Work to be done using Excel. Read all the questions before answering them, as it will influence how you create your Excel file. All cells must be linked. You should build the file in such a way that only assumptions need to be varied. Otherwise, you will have difficulty answering all the questions without multiple copy$-$pastes.

$1-$Create an income statement with zero debt as presented on slide $11$ of session $6$ for years $0$ to $10.$ To get full marks, calculations must be done by Excel and not by copying figures from a calculator. The last line of your table should indicate the net income with zero debt for each year. $[$Do it on the Excel file and report only the net income with zero debt on the PDF file$]$

$2-$Create a cash flow statement for years $0$ to $10,$ clearly indicating, for each year, the amount of depreciation, investment expenses, and changes in working capital needs. The last line of your table should indicate the available cash flows for each year. $[$Do it on the Excel file and report only the available cash flows on the PDF file$]$

$3-$Calculate the NPV of the project using a return rate of $8\%$ per year. You can use the NPV function directly or discount each cash flow individually. You will get full marks if the approach is clear. $[$Do it on the Excel file and report only the NPV on the PDF file$]$

$4-$ Create a graph of the NPV as a function of the discount rate. For simplification, start your graph at a discount rate higher than the final growth rate of cash flows. You can start at $5\%.$ Use an increase of $0\mathrm{.}5\%$ in the discount rate and do not exceed a discount rate of $15\%.[$Do it on the Excel file and report the graph on the PDF file$]$

$5-$Using the graph, estimate the project's IRR. $[$Answer on the PDF file$]$

$6-$Perform a sensitivity analysis of the NPV for a variation of $+/-1\%$ in the final growth rate. You should obtain two different values for the sensitivity of the NPV$.[$Do it on the Excel file and report the results on the PDF file$]$

$7-$Perform a scenario analysis by varying the final growth rate and the required return rate. Vary the final growth rate between $1$ and $5\%($with an increase of $1\%)$ and the required return rate from $7$ to $13\%($also with an increase of $1\%).$ Represent everything in a table. $[$Do it on the Excel file and report the table on the PDF file$]$