I have a homework assignment that I am completely drawing a blank on. Any help would be greatly appreciated!! Iron Ore What? (IOW) Casting Company is considering adding a new line to its product mix. Sydney Johnson, a recently minted MBA, will be conducting the capital budgeting analysis. The new production line would be set up in unused space in IOWs main plant. The machinery invoice price totals approximately $250,000, with another $20,000 in shipping charges and $30,000 to install the equipment, for a total requirement estimated at $300,000. The machinery has an economic life of 4 years, and IOW has obtained a special tax ruling that places the equipment in the Modified Accelerated Cost Recovery System (MACRS) 3-year class. After 4 years of use the machinery is expected to have a salvage value of $25,000. The new product line would generate incremental sales of 1,350 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 each in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firms net working capital would have to increase by an amount equal to 15% of sales revenues. The firms tax rate is 40%, and its overall weighted average cost of capital is 12%. 1. Calculate and provide the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows? 2. Construct 4 years of annual incremental operating cash flow statements for IOW Casting Company. Estimate the required net working capital for each year, and the cash flow due to investments in net working capital. Calculate the after-tax salvage cash flow. 3. Calculate the net cash flows for each of the 4 years. Based on these cash flows, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest the project should be undertaken? Explain. 4. What does the term risk mean in the context of capital budgeting? To what extent can risk be quantified, and, when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on subjective, judgmental estimates? Provide your rationale. 5. Describes sensitivity analysis and discuss a) its primary weakness; and b) its primary usefulness? For the IOW project, perform a sensitivity analysis on the unit sales, salvage value, and cost of capital. Assume that each of these variables can vary from its expected, or base-case value by 10%, 20%, and 30%. Include a sensitivity diagram, and discuss the results.