IM has been exploring some growth opportunities. One opportunity that looks promising is a new factory that can produce battery operated Sports Utility Vehicles or SUV's, SUVs are currently very popular with young families and the demographic is expected to continue to grow. The problem is that many consumers are not convinced a battery alone will provide the sufficient mileage and would prefer a hybrid of gas/battery. A plant (complete with equipment) that could produce hybrid SUV's is expected to cost $11.5M. All factory and equipment costs have a CCA depreciation rate of 20% and an expected salvage value of $2.17M at the end of the project's life in 8 years. Hybrid SUV's sell for $60,000 with a production cost of $50,000. Fixed costs are expected to be $1,500,000 annually. Net working capital is expected to be $200,000 per year throughout the project's life. IMI expects to be able to produce and sell 525 SUV's a year every year of the project's life. At a board meeting, the VP of Marketing indicates that the company spent $150,000 on a marketing study that determined the expected future care sales. The VP of Operations mentions that IMI owns an empty warehouse that is currently on the market for $1,200,000. Instead of selling it, it could easily be converted to a new plant, saving the project money. Everyone nods enthusiastically in agreement. Geoff tasks you with determining whether the expansion and its possible upgrade option are a good investment for the company. Part 2: Use a WACC of 19% for your calculations going forward. a. How should the $150,000 marketing study be addressed in your valuation? 6. Should the $1,200,000 warehouse mentioned by the VP be considered a reduction in the initial investment? Explain. c. What is the NPV of the hybrid plant? d. What is the IRR of the hybrid plant? e. Should the company invest in a plant to make hybrid SUV's? What are some other things to consider before making the decision? (No calculation necessary) For the next three questions, assume the following: no taxes, depreciation is straight-line, no half-year rule, and salvage is still $2,170,000. 6. What is the cash break-even level of output for the base case of this project? 7. What is the accounting break-even level of output for this project? 8. What is the financial break-even level of output for this project? IM has been exploring some growth opportunities. One opportunity that looks promising is a new factory that can produce battery operated Sports Utility Vehicles or SUV's, SUVs are currently very popular with young families and the demographic is expected to continue to grow. The problem is that many consumers are not convinced a battery alone will provide the sufficient mileage and would prefer a hybrid of gas/battery. A plant (complete with equipment) that could produce hybrid SUV's is expected to cost $11.5M. All factory and equipment costs have a CCA depreciation rate of 20% and an expected salvage value of $2.17M at the end of the project's life in 8 years. Hybrid SUV's sell for $60,000 with a production cost of $50,000. Fixed costs are expected to be $1,500,000 annually. Net working capital is expected to be $200,000 per year throughout the project's life. IMI expects to be able to produce and sell 525 SUV's a year every year of the project's life. At a board meeting, the VP of Marketing indicates that the company spent $150,000 on a marketing study that determined the expected future care sales. The VP of Operations mentions that IMI owns an empty warehouse that is currently on the market for $1,200,000. Instead of selling it, it could easily be converted to a new plant, saving the project money. Everyone nods enthusiastically in agreement. Geoff tasks you with determining whether the expansion and its possible upgrade option are a good investment for the company. Part 2: Use a WACC of 19% for your calculations going forward. a. How should the $150,000 marketing study be addressed in your valuation? 6. Should the $1,200,000 warehouse mentioned by the VP be considered a reduction in the initial investment? Explain. c. What is the NPV of the hybrid plant? d. What is the IRR of the hybrid plant? e. Should the company invest in a plant to make hybrid SUV's? What are some other things to consider before making the decision? (No calculation necessary) For the next three questions, assume the following: no taxes, depreciation is straight-line, no half-year rule, and salvage is still $2,170,000. 6. What is the cash break-even level of output for the base case of this project? 7. What is the accounting break-even level of output for this project? 8. What is the financial break-even level of output for this project