Hope Corporation is considering an expansion project. The proposed project has the following features: (17 points)

The project has an initial cost of $1,000,000 (machine: $800,000, insurance: $40,000, shipping $60,000, modification: $100,000) --this is also the amount which can be depreciated using the following 5 year MACRS depreciation schedule:

Year Depreciation Rate

1 20%

2 32

3 19.20

4 11.52

5 11.52

6 5.76

The sales price is expected to increase by 2 percent per year due to inflation.

The variable cost is expected to increase by 3 percent per year.

The fixed cost will be $50,000 per year for the next five years. (No fixed cost increase)

Number of units sold will grow by 5 percent every year.

If the project is undertaken, net working capital would have to increase by an amount equal to 10% of sales revenues. This net operating working capital will be recovered at the end of the projects life (t = 5). (You must consider an inflation effect.)

If the project is undertaken, the company will sell additional 200,000 units in year one (t = 1). Unit price at the end of the Year 1 is $10.

Unit price is $10 and variable unit cost is $4 at the end of the Year 1.

The companys tax rate is 30 percent.

The company has no debt.

At the end of Year 5, the projects economic life is complete, but the company can sell the machine at $20,000 (market value of salvage).

The projects WACC = 10 percent.

Hint: You can start from CH 11 Tool kit excel spreadsheet.

Calculate NPV using Excel.

Using Two Way Data Table of the Excel, show the sensitivity of the NPV of the project to the growth rate of units sold per year (Use the growth rate from 0% to 10% in 1% increment) and to the projects WACC (Use the WACC 7% to 13% in 1% increment),