Lifewear, a manufacturer of women's sports clothes, is considering adding a line of skirts and jackets. The production would take place in a part of its factory that is currently not being used. The first output would be available in time for the 2021 fall season. The following information is available. Answer parts (a) through (d).

New Product Line Information
First cost in 2020 ($)	15,000,000
Planned output (units/year)	325,000
Observed, current dollar MARR LOADING... before tax	0.25
Study period	6 years
Year 2020 Prices ($/unit)
Materials	12
Labour	8.50
Output	35

a. What is the

real internal rate of return ?

(This is most easily done with a spreadsheet.)

The real internal rate of return is about

percent.

(Round to one decimal place as needed.)

b. What

inflation rate

will make the

real MARR

equal to the real internal rate of return?

The inflation rate would need to be about

percent.

(Round to two decimal places as needed.)

c. Calculate the present worth of the project under three possible future inflation rates. Assume the inflation rate will be 1 percent, 2 percent, or 3 percent per year.

With an inflation rate of 1 percent, the present worth of the project would be

$

With an inflation rate of 2 percent, the present worth of the project would be

$.

With an inflation rate of 3 percent, the present worth of the project would be

$.

(Round to the nearest integer as needed.)

d. Decide if Lifewear should add this new line of skirts and jackets. Explain your answer.

Based on the answers from parts (a), (b), and (c), the firm

should not

should

accept the project since the project

is not

is

profitable at inflation rates below the inflation rate found in part (b) where said inflation rates are

not uncommon