Maxine Wells, the CEO of Jabnet, met with her advisor, Dennis Clean, to review a capital-expenditure proposal on a production plant to produce SARS-20 vaccines using mRNA technology. The proposal, named AntiSARS project, calls for an expenditure of $9 million spread over three years to convert an existing production plant from batch to continuous-flow technology and to install sophisticated state-of-the-art process controls throughout the plant. This project is only feasible with a continuous source of cationic lipids from a chemical synthesis process conducted in a specialised manufacturing facility. The proposal suggests Jabnet to purchase this type of manufacturing facility from a supplier. Jabnet has an option to exclusively purchase the cationic lipids facility from a supplier for $4 million (included in the proposed $9 million expenditure). The option was purchased several years earlier. Dennis advises the CEO that a comparable cationic lipids manufacturing facility can be sold today for $7 million in an auction. Dennis also forecasts that at the end of the project, the value of the cationic lipids manufacturing facility will be $30 million. This option will expire in 5 months.

The proposal will require the plant to be shut down for 5 months in the 1st year, 4 months in the 2nd year, and 3 months in the 3rd year. Dennis believes the loss will not be permanent. The benefits include an increase of 6% in new output gain on old output [new output = old output x (1+6%)] and an increase of 3% in gross margin on old gross margin of 11.5% (new gross margin = old gross margin + gross margin increase). The increased outputs will necessitate additional work-in-process inventory in value to 3% of the increased cost of goods. Dennis suggests that new assets will be fully depreciated on a straightline basis over the life of the project. It is Jabnet's policy to record depreciation expenses in the same year as expenditures. Dennis also estimates that overhead costs are at 3.5% of the increased sales. Inflation is set at 0%.

It is Jabnet's policy to evaluate projects based on four criteria: (1) net present value, (2) internal rate of return, (3) payback, and (4) growth in earnings per share. Your task is to examine Dennis's analysis and make adjustments where necessary.

1)An executive vice president of Jabnet recently proposed that the company should consider a project in All SARS (based on the All SARS spreadsheet provided). Maxine has asked you to evaluate the All SARS project as she does not trust Dennis. You need to evaluate the All SARSproject based on four criteria: (1) net present value, (2) internal rate of return, (3) payback, and (4) growth in earnings per share. Provide your estimates of each of these project selection methods.