Hoosier Technology, Inc. is a producer of portable printers. Its current line of Wi-Fi printers are selling excellently. However, in order to cope with the foreseeable competition with other similar printers, HT spent $6,400,000 to develop a new line of portable printers (new model development cost) that enables users to print photos from smartphones or tablets. The new portable printer model is approximately the size of a cell phone, has Bluetooth technology and is capable of printing both pictures and stickers. Users of the portable printer are able to download an app for the device which allows them to customize photos before printing. The wireless capability also allows friends and family to print to the same printer from all wireless smartphone and tablet devices. Furthermore, the portable printer has a very appealing look, has 512 MB of memory, includes a USB cable, and no ink cartridges are required for operation. The company had also spent a further $1,300,000 to study the marketability of this new line of portable Wi-Fi printers (marketability studying cost). HT is able to produce the new portable printers at a variable cost of $90 each. The total fixed costs for the operation are expected to be $8,000,000 per year. HT expects to sell 3,200,000 printers, 4,200,000 printers, 2,800,000 printers, 1,800,000 printers and 1,000,000 printers of the new model per year over the next five years respectively. The new Wi-Fi portable printers will be selling at a price of $160 each. To launch this new line of production, HT needs to invest $33,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $3,500,000 as at the end of the 5 year project life. HT is planning to stop producing the existing Wi-Fi printers entirely in two years. Should HT not introduce the new portable Wi-Fi printers, sales per year of the existing Wi-Fi printers will be 1,900,000 printers and 1,300,000 printers for the next two years respectively. The existing model can be produced at variable costs of $70 each and total fixed costs of $7,500,000 per year. The existing Wi-Fi printers are selling for $130 each. If HT produces the new portable model, sales of existing model will be eroded by 1,140,000 printers for next year and 1,105,000 printers for the year after next. In addition, to promote sales of the existing model alongside with the new portable model, HT has to reduce the price of the existing model to $80 each. Net working capital for the new portable Wi-Fi printer project will be 25 percent of sales and will vary with the occurrence of the cash flows. As such, there will be no initial NWC required. The first change in NWC is expected to occur in year 1 according to the sales of the year. HT is currently in the tax bracket of 35 percent and it requires a 20 percent returns on all of its projects. The firm also requires a payback of 4 years for all projects. You have just been hired by HT as a financial consultant to advise them on this new portable printer project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month.

What is/are the sunk cost(s) for this new portable Wi-Fi printer project? Briefly explain.You have to tell what sunk cost is and the amount of the total sunk cost(s). In addition, you have to advise HT on how to handle such cost(s).

What are the cash flows of the project for each year?

What is the payback period of the project?

What is the PI (profitability index) of the project?

What is the IRR (internal rate of return) of the project?

What is the NPV (net present value) of the project?

Should the project be accepted based on Payback, PI, IRR and NPV? Briefly explain.

Net Sales Estimation: Use the formula stated below to calculate the net sales.

Year t Net Sales

=Unit sales of new model for Year t Price of new model

Reduction in unit sales of existing model for Year t Current price of existing model

[(Unit sales of existing model for Year t if new model project is not launched Reduction in unit sales of existing model if new model project is launched) (Current price of existing model Reduced price of existing model)]

Year 1 Net Sales

= $ $

( ) ($ $ )

= $

Year 2 Net Sales

= $ $

( ) ($ $ )

= $

Year 3 Net Sales = $

Year 4 Net Sales = $

Year 5 Net Sales = $

Variable Cost Estimation: Use the formula stated below to calculate the variable costs.

Year t Variable costs

= Unit sales of new model for Year t Variable cost per unit of new model

Reduction in unit sales of existing model for Year t Variable cost per unit of existing model

Year 1 Variable costs

= $ $

=$

Year 2 Variable costs

= $ $

=$

Year 3 Variable costs =$

Year 4 Variable costs =$

Year 5 Variable costs =$

Depreciation Estimation: Use the formula stated below to calculate the depreciation expenses.

Depreciation of Year t = Cost of equipment MACRS percentage for Year t

[For all MACRS percentages in this part, enter as a decimal number with 4 decimal places.]

Depreciation of Year 1 = $ =$

Depreciation of Year 2 = $ =$

Depreciation of Year 3 = $ =$

Depreciation of Year 4 = $ =$

Depreciation of Year 5 = $ =$

Net Working Capital Estimation: Use the formula stated below to calculate the net working capital requirements.

NWC for Year t = NWC Required Percentage Net sales of Year t

[For the NWC required percentage in this part, enter as a decimal number with 2 decimal places.]

NWC for Year 1 = $ =$

NWC for Year 2 = $ =$

NWC for Year 3 = $ =$

NWC for Year 4 = $ =$

NWC for Year 5 = $

CASH FLOW ESTIMATION: Complete the following table below.

	Year 1	Year 2	Year 3	Year 4	Year 5
Sales	$	$	$	$	$
VC	$	$	$	$	$
Fixed costs	$	$	$	$	$
Dep	$	$	$	$	$
EBT	$	$	$	$	$
Taxes (35%)	$	$	$	$	$
NI	$	$	$	$	$
+ Dep	$	$	$	$	$
OCF	$	$	$	$	$
NWC
Beg	$	$	$	$	$
End	$	$	$	$	$
NWC CF	$	$	$	$	$
NCF	$	$	$	$	$

Estimation of total Year 5 cash flow: Provide your responses to the following.

At the end of the project's 5-year life,

Accumulated depreciation of equipment = $

Book value of equipment = $

Market value of equipment = $

Tax associated with sale of equipment = $ [Enter as a positive number if tax liability or as a negative number if tax credit.]

CF on sale of equipment = $

Total Year 5 cash flow = $

Hint : Net CF (Net cash flow) = OCF (Operating cash flow) + NWC CF (Net working capital cash flow)

Year 1 through Year 4 cash flow = Net CF of the individual years.

Year 5 cash flow = Net CF of Year 5 + CF on sales of equipment.

Evaluation of Project: Fill out the following tables.

Year	Cash flow
0	$
1	$
2	$
3	$
4	$
5	$

(Do not round your calculations. Round your answers below to the number of decimal places specified.)

Evaluation Method
Payback	years (2 decimal places)
PI (Profitability Index)	(2 decimal places)
IRR (Internal Rate of Return)	% (2 decimal places)
NPV (Net Present Value)	$ (whole number with no decimal place)