Lock uses no debt and so estimates its cost of capital with the expected return on its shares calculated using CAPM. Company policy specifies use of the cost of capital for project evaluation.

Lock's latest window lock design Lock has spent $500,000 over the past six months developing a new window lock design, which the company has now patented. Last week, Lock received an offer from Global Corporation Limited to license the design patent for five years. Global would pay a $1 million licensing fee per year, payable at the end of each year. If Lock was to accept this offer, it would need to spend $200,000 immediately on legal and administrative costs it would not otherwise incur. 

In the past, Lock has not manufactured and sold products itself, instead selling or licensing its design patents to other companies, like Global Corporation. Nevertheless, for this design, Lock has been investigating if they should manufacture and sell the lock themselves. So far, this investigation has involved hiring an external consulting firm to provide Lock with a production and sales plan. Lock paid $250,000 upon receiving the plan two weeks ago. 

Based on expected competitive conditions, the consultant's plan recommends only a five-year period for manufacturing and selling the window lock. The plan forecasts annual sales volume of 50,000 units in the first year of the project and this is expected to grow by 10% in year two, and fall by 20% per year in each remaining year. The consultants recommend a selling price of $195 per unit. 

In terms of operating cost estimates, the product's cost of goods sold will be 50% of sales revenue and selling, general and administrative expenses (excluding depreciation) will be $1.5 million in the first year and increase by 4% per year thereafter. Lock's Operations Manager has considered various locations where product manufacturing might take place. Her recommendation is the use of factory space Lock owns but currently rents for $300,000 per year to another business. 

Equipment will have to be purchased before manufacturing of the product can commence. Quotes indicate this will cost $3 million. The equipment will be depreciated at a prime cost rate of 15% per annum for tax purposes and be sold at the end of the last year of the project for an expected $2 million. Lock will also need to invest in net working capital. The balance of net working capital will need to be 25% of each upcoming year's sales and reduced to zero at the end of the project.

 Lock pays income tax at a rate of 30%. For project analysis purposes, assume all taxes are paid (credited) at the end of the year to which they relate and Lock is not eligible for any research and development tax deductions.            

Show in excel sheet with proper explanation to calculate FCA.