Mann Co is a listed company. In past several months, the stock price of the Mann Co has continued to decline due to operating losses, which makes the board of directors in face of great pressure. Mann Co board is considering to invest in a new project to improve company's financial performance. According to the prediction of the Mann Cos financial manager, the new project life is expected to be 5 years. At the beginning of the project, the sales volumes and selling price of the products are relatively high. In the later stage of the project, with the entry of competitors, both the sales volume and unit price will decrease. The forecast sales volumes, selling price, variable costs of the projects are as follows:

Year 12345

Sales (units/year) Selling price ($/unit) Variable cost ($/unit)

80000

110000 120000 300 300 180 180

120000 100000 300 270 250 180 180 180

The equipment needed to begin production has an installed cost of $30 m and the tax law allows Mann Co equipment depreciate to zero over 10 year using straight-line depreciation. Mann Cos financial manager forecast that this equipment can be sold for $2 m after completion of the project. In addition, production of the project will require $1.5m in net working capital to start and additional new working capital investments each year equal to 10% of the projected sales increase for the following years. The financial manager estimates that the annual factory building rental and other fixed expenditures are about $2m for each year. The marginal tax rate of Mann Co is 35% and the require return on the project is 12%.

Required:

(a). Calculate the after-tax salvage value of the equipment. (5 marks) (b). Calculate the cash flow from asset for each year. (6 marks) (c). Calculate the Net Present Value of the project. (4 marks) (d). Calculate the Payback period of the project. (2 marks)

(e). Would you suggest Mann Co invest this project? Why? (3 marks)