- Lay out the complete cashflow curve. Start with money out, including initial costs and ongoing maintenance costs. You can use the irregular cashflow spreadsheet to do this, just be sure to include copies of the spreadsheet in your answer so that I can see how you did it. Project A WWW will invest considerable amounts into expanding their current widget production capacity. This will involve the construction of a large extension to their existing factory, as well as the purchase of new production equipment, the training of new production workers, and the operation of this new capacity across the next 20 years. Corporate cost of money is 4% for WWN. Project A Costs and Cashffow Elements - Money Out - The construction of the new factory extension will cost an estimated $8.7 million and will take place in years 1 and 2 , with total costs spread evenly across both years. - The new equipment needed to expand production will cost an estimated $6.1 million, which will occur in year 2 . - Training for new staff will cost a projected $645,000 in year 2 - Maintenance on the building and new equipment will cost an estimated $300,000 annually, beginning at the end of year 2, but is forecast to rise by $12,000 each year for the next 18 years, from year 2 to year 20 . - Current non-operating costs and revenues are expected to remain unchanged and can be ignored. - If project A is selected, it will allow production to be doubled, to 50,000 widgets per year. Project A Costs and Cashflow Elements - Money in - WWW currently produces 25,000 widgets annually, at an Average Total Cost (ATC) per widget of $652 and a market price of $850 per widget. WWW is a price searcher, so they have been holding production to the level at which they get the lowest ATC. - The marketing department is convinced that there would be much larger demand if they could lower the price to $800, but current costs prevent that. Current sales are at 25,000 widgets per year. - Figure 1 shows the projected ATC curve for WWW if they go ahead with Project A. Background Data - WWW's WACC is 4% and is expected to remain constant for the next 20 years. - WWW's MARR (hurdle Rate) is currently 12% - The expected average inflation rate for the next 20 years is 2% - The marketing department projects the demand for widgets to remain strong for the foreseeable future but the marketeers don't actually know the future