Happy Home is considering introducing a new set of living room sofa ("Comfi Fabric Corner") to complement its existing product line. You are the Chief Financial Officer of Happy Home and are tasked to evaluate the feasibility of this project. The projected revenues and costs associated with this investment are as follows: 1. After a market research costing the firm 10,000, a selling price of 5,000 per set of sofas has been agreed. Variable production costs will amount to 45 percent of the selling price, and fixed costs are 1 million per year. 2. Sales will be 2,000, 2,500, 3,000, 2,000 and 1,800 sofa sets per year for years t=1, 2, 3, 4, and 5, respectively. A new range of product will replace this sofa set at the end of the 5th year. 3. One area of concern is that the selling of the new sofas will reduce the company's existing traditional dining table product ("Royal Oak"). It is estimated that sale of "Royal Oak" will go down from 10,000 units per year to 9,000 units per year. The "Royal Oak" sells for 2,000 per unit and has a variable production cost amounting to 40 percent of the selling price. 4. To produce the sofas, the company needs to make an initial investment of 10 million in equipment. The equipment is depreciated to zero book value over the 5-year period using the straight-line method. At the end of the 5th year, the equipment will be sold at a market price of 2 million. 5. Changes in working capital requirements: Cash increases by 5% of the change in sales; inventory increases by 5% of the change in sales; trade receivables increase by 5% of the change in sales; and trade payables increase by 5% of the change in variable production costs. These working capital requirements are company-level policies and are applicable to both the sofa sets and the dining tables. Working capital will be required at the end of year 1 and will be released later. 6. All revenues and expenses are paid in cash in the year they incur. 7. The corporate tax rate is 40 percent. 8. The project has a beta of 1.5, the risk-free rate is 3% and the market risk premium is 6%. Requirements: a. Calculate the Net Present Value and the Payback Period of this project. [65 marks] . Advise the Chief Executive Officer of Happy Home on whether the company should undertake this nvestment. In your answers, you may want to comment on the feasibility of the project and discuss other actors that may influence the decision. [10 marks] Part 2. "Over the last 15 years, 94% of corporate profits have gone to shareholders in the form of buybacks and dividends, instead of to workers and their families. The practice of corporate stock buybacks does not just drive inequality it drains resources for investment in workers, research and development, and the long- term growth of companies." Critically discuss these statements. [25 marks]