Design Costs, Already Incurred to Date $150,000 Initial Cost of Equipment $675,000 Annual Depreciation on Equipment $135,000 After-Tax Salvage Value of Equipment Year 5 $65,000 Annual Selling and Administrative Expenses $95,000 Production Costs (% of Sales) 35% Working Capital Investment (% of Sales) 25% Effective Tax Rate (% of Taxable Income) 21% Required Return (%) 12% Sales Projections Year One $250,000 Year Two $650,000 Year Three $850,000 Year Four $800,000 Year Five $450,000 Fresnel Enterprises, Inc. is embarking on a new venture with a partner manufacturing company in China. Fresnel has designed a new line of screen guards for smartphones that not only protect screens, but also act as a magnifying glass. They expect the new screen guards to be particularly popular with retirees in the United States, so are already planning a marketing campaign targeting the Florida and Arizona markets. However, while Fresnel can manage design, marketing, and distribution in the United States, they have little manufacturing expertise. So, they hired a contract manufacturer in China to handle production. Fresnel will supply the initial investment dollars needed to set up the production and assembly lines in China, and then pay their partner a modest fee for each unit produced. Since they are handling distribution, there will also be some working capital investments required. Fresnel is planning a 5-year time horizon for this project. At the end of year 5, the company will liquidate the assets from the project. All assets will have been fully depreciated. A list of facts and assumptions, including sales forecasts for the life of the project, is given at the beginning. Provide a financial analysis of this project to help determine if it should be pursued: a) Using the information provided, create simple income statements for each year of the project. Calculate the annual Operating Income (EBIT) and Net Income. b) Create an analysis of the Working Capital needs and changes for each year c) Determine the Free Cash Flow for each year of the project. d) Calculate the project's NPV, BCR, and IRR. e) Based on your analysis, briefly explain whether this project should be pursued and why.