Intermedians Inc. manufactures and sells industrial adhesives to car manufacturers. They are considering an R&D project to develop a new line of adhesives with reduced volatile organic compounds (less pollution when used). R&D is expected to take 5 years. Product launch, assuming R&D is successful, would occur in Year 6. ($s in 000s) Year 1 2 3 4 5 6 7 8 9 10 Expected Cash Flow ($2,150) ($3,250) ($4,070) ($3,750) ($2,925) $8,750 $17,450 $23,225 $26,450 $28,125 Intermedians would need to pay Rutgers $1,425 in Year 0 to license a technology to produce the new line of adhesives. Part A (i) The company's CFO has determined that a 35% required rate of return be used to evaluate the project. What were the drivers in the CFO's decision? (ii) Should the Intermedians consider funding this project? Part B Installation of new mixing and testing equipment would reduce R&D spending for this project. The new mixing and testing equipment would be upgrades that use proven technology. Expected cash flows for years 1 - 5 with this new equipment are as shown below. 1 2 3 4 5 Expected Cash Flow ($1,990) ($2,550) ($3,150) ($3,005) ($2,025) with new Equipment Expected cash flows for Years 6 - 10 are unchanged and Internedians would still have to pay Rutgers for their technology. Purchase and installation of the new equipment requires spending (Year 0) of $1,055 (i) What are the major risks for the investment in new mixing equipment? (ii) What required rate of return would you use to evaluate the decision to purchase and install the new equipment? (Choose one) 25% 30% 35% 40% Explain your choice. (iii) Using the required rate of return chosen above, should Intermedians purchase and install this equipment?