In question one, the third part of the question asks if we would include an increase to net working capital. It is unanswered here. Can you explain?

Question 1 Total Relevant Initial investment = 24,000,000 = $ 24,000,000 The cost of designs and prototypes are sunk costs. They are not relevant in this decision since whether or not the project goes Question 2 Cashflow of disposal of equipment = $ 2,400,000 Question 3 Schedule of Depreciation Year 0 1 2 3 4 5 Current Depreciation Accumulated Dep 24,000,000 * 0.2000 = 4,800,000 24,000,000 * 0.3200 = 7,680,000 24,000,000 * 0.1920 = 4,608,000 24,000,000 * 0.1152 = 2,764,000 24,000,000 * 0.1152 = 2,764,000 4,800,000 12,480,000 12,288,000 7,372,800 5,529,600 Book Value 24,000,000 19,200,000 6,720,000 (5,568,000) (12,940,800) (18,470,400) Sales Cost of Goods Sold Gross Profits Selling, general, and administrative exp Annual Fixed Costs Depreciation Profit Before Tax Taxes Profit after Tax Add Back : Depreciation Operating Cashflows Year 1 16,500,000.00 6,600,000.00 9,900,000.00 825,000.00 600,000.00 4,800,000.00 3,675,000.00 1,249,500.00 2,425,500.00 4,800,000.00 7,225,500.00 Year 2 17,490,000.00 6,996,000.00 10,494,000.00 874,500.00 ### 7,680,000.00 1,339,500.00 455,430.00 884,070.00 7,680,000.00 8,564,070.00 Question 4 Question 5 Operating Cashflows Net working Capital Cashflows from discontinued product Disposal Incremental Cashflows Year 1 7,225,500.00 (480,000.00) 1,650,000.00 8,395,500.00 Year 2 8,564,070.00 ### ### 10,214,070.00 Year 1 8,395,500.00 7,702,293.58 Year 2 10,214,070.00 8,596,978.37 Question 6 Incremental Cashflows Present Value of Cashflows Initial Investment Question 7 The management should accept the projest since it provides positive net present value of incremental cashflows over the existi nce whether or not the project goes on, they have already been incurred. Year 3 18,539,400.00 7,415,760.00 11,123,640.00 926,970.00 600,000.00 4,608,000.00 4,988,670.00 1,696,147.80 3,292,522.20 4,608,000.00 7,900,522.20 Year 4 19,651,764.00 7,860,705.60 11,791,058.40 982,588.20 600,000.00 2,764,800.00 7,443,670.20 2,530,847.87 4,912,822.33 2,764,800.00 7,677,622.33 Year 5 20,830,869.84 8,332,347.94 12,498,521.90 1,041,543.49 600,000.00 2,764,800.00 8,092,178.41 2,751,340.66 5,340,837.75 2,764,800.00 8,105,637.75 Year 3 7,900,522.20 1,650,000.00 9,550,522.20 Year 4 7,677,622.33 1,650,000.00 9,327,622.33 Year 5 8,105,637.75 480,000.00 1,650,000.00 2,400,000.00 12,635,637.75 Year 3 9,550,522.20 7,374,755.47 Year 4 9,327,622.33 6,607,922.82 Year 5 12,635,637.75 8,212,297.56 NPV Total 50,123,352.28 45,984,726.87 (24,000,000.00) 21,984,726.87 incremental cashflows over the existing product. The management should undertake the project