FMC Inc, is considering the opportunity to invest in a novel production technology. The financial projections for the technology are provided in Table 1 below. The discount rate for this investment opportunity is

12%

and the tax rate is

21%

. The technology is depreciated using the straight-line method to a book value of 0 over 4 years. Compute the net income and project cash flows of this investment opportunity for each year. Discuss if FMC should invest if it uses the NPV rule. How does your answer change if it uses the IRR rule? While the current estimate of the tax rate is

21%

, the managers of FMC Inc. are uncertain about it. Perform one-way sensitivity analyses of the NPV estimate and the IRR estimate with respect to the tax rate parameter (use values from

18%

to

24%

with an increment of

1%

. Provide a brief interpretation of the results of the sensitivity analyses. The managers of FMC Inc. are also uncertain about their projections of the annual operating costs and the discount rate. Perform a two-way sensitivity analysis of the NPV estimate with respect to the discount rate (use values from

10%

to

14%

with an increment of

1%

) and the annual operating costs (use values from 1,100 to 3,100 with an increment of 500 ). Note that the uncertainty is about all four annual cost estimates and not about one particular year.\ Table 1\ \\\\table[[,Year 0,Year 1,Year 2,Year 3,Year 4],[Investment in Tech,31,000,,,,],[Sales revenue (in $),,14,200,15,900,15,700,12,900],[Operating costs,,2,100,2,100,2,100,2,100],[Depreciation,,7,750,7,750,7,750,7,750],[Required NWC,450,500,750,750,900]]

FMC Inc, is considering the opportunity to invest in a novel production technology. The financial projections for the technology are provided in Table 1 below. The discount rate for this investment opportunity is 12% and the tax rate is 21%. The technology is depreciated using the straight-line method to a book value of 0 over 4 years. Compute the net income and project cash flows of this investment opportunity for each year. Discuss if FMC should invest if it uses the NPV rule. How does your answer change if it uses the IRR rule? While the current estimate of the tax rate is 21%, the managers of FMC Inc. are uncertain about it. Perform one-way sensitivity analyses of the NPV estimate and the IRR estimate with respect to the tax rate parameter (use values from 18% to 24% with an increment of 1% ). Provide a brief interpretation of the results of the sensitivity analyses. The managers of FMC Inc. are also uncertain about their projections of the annual operating costs and the discount rate. Perform a two-way sensitivity analysis of the NPV estimate with respect to the discount rate (use values from 10% to 14% with an increment of 1% ) and the annual operating costs (use values from 1,100 to 3,100 with an increment of 500 ). Note that the uncertainty is about all four annual cost estimates and not about one particular year