Mirror Inc. has developed a powerful efficient Golf Cart that is significantly less polluting than existing golf carts currently on the market.The company spent $1,500,000 developing this product and the marketing department spent another $250,000 to assess the market demand. It would cost $18 million at Year 0 to buy the equipment necessary to manufacture the efficient golf cart. The project would require net working capital at the beginning of each year equal to 23% of sales (NOWC0 = 23%(Sales1), NOWC1 = 23%(Sales2), etc.).The efficient golf carts would sell for $2,750 per unit, and Mirro believes that variable costs would amount to $810 per unit.The company expects that the sales price and variable costs would increase at the inflation rate of 1.8% after year 1.The company's non-variable costs would be $760,000 in Year 1 and are expected to increase with inflation. The efficient golf cart project would have a life of 5 years.If the project is undertaken, it must be continued for the entire 5 years.Also, the project's returns are expected to be highly correlated with returns on the firm's other assets.The firm believes it could sell 3,750 units per year.

The equipment would be depreciated using a CCA rate of 30%.The estimated market value of the equipment at the end of the project's 5-year life is its undepreciated capital cost (i.e. book value) at the end of year 5.Mirror has other assets in this asset class. Mirror Inc.'s federal-plus-provincial tax rate is 30%.Its cost of capital is 8.75% for average risk projects. Low-risk projects are evaluated with a WACC of 5.5%, and high-risk projects at 11.25%. Assume that the half-year rule applies to the CCA.

The company's capital structure is based on long term debt-financing (weight 20%, avg rate 5%), preferred shares (weight 30%, avg rate 7.5%) and common shares (weight 50%, avg rate 11.6%).

a. Develop a spreadsheet model and use it to find the project's NPV, IRR, and payback. Part 1. Input Data (in thousands of dollars except for unit amount) Equipment cost $ 18,000 Net Operating WC/sales 23% Yearly sales (in units) 3,750 Tax rate 30% Sales price per unit $2,750.00 WACC 9.05% 11.25% Variable cost per unit $810.00 Inflation 1.8% Non-variable costs $760,000.00 CCA rate 30.0% Part 2. CCA Schedule year 1 year 2 year 3 year 4 year 5 Beg. UCC $ 18,000,000 $15,300,000 $ 12,240,000 $ 9,792,000 $ 7,833,600 CCA $ 2,700,000 $ 3,060,000 $ 2,448,000 $ 1,958,400 $ 1,566,720 End UCC $ 15,300,000 $12,240,000 $ 9,792,000 7,833,600 $ 6,266,880 Part 3. Projected Net Cash Flows (Time line of annual cash flows) Years 0 2 3 4 5 Investment Outlays at Time Zero: Equipment $ 18,000,000Part 3. Projected Net Cash Flows ( Time line of annual cash flows) Years 3 4 Equipment Operating Cash Flows over the Project's Life: Units sold 3.750 3.750 3,750 3.750 3.750 Sales prike 52.750.80 2,849.89 2.901.19 2,953.41 Variable costs $39.42 $89.91 Sales revenue (In 10) $10.312,500 $10,498,125 $10,647.091 $10,879.459 $11,075 289 Variable coats (In 140) 34037.500 3,092,175 3,147.834 3,204,495 3,262,176 Non variable operating costs #16 215 25 Depreciation (equipment] 1,958-400 1,546.720 Oper. income before faves (EBIT) 3.815,010 3.572.270 1 303,651 4.914.781 Taxes on operating income 1,144 50 1,071,681 1.291,095.26 1.474.434.17 1.629 053.35 Net Operating Profit After Taves (NOPAT) 1,012.565.60 3.440.346.40 3,801,124.48 Add back depreciation 1.958 400 1.546,120 Operating cash flow $5.590 5890 $5 398 746.40 $5 367.844.48 Workier Caplab Required level of net operating working capital 52 371,875 $2,414,589 52.458,10 32 502 276 32 547 316 51 $2,593,167 Required investment in NOWC $3,108,972 33,164,934 53,221,902 Terminal Year Cash Flows! Net salvage value 3,673.530 Net Cash Flow ( Time line of cash flows) Part 4. Key Output: Appraisal of the Proposed Project Net Present Value (at 8.75%%) Note: NPV rate should be cell reference to 126, rather than absolute value. Otherwise, Data Table will not work. IRR MIRR Payback ( Show calculation below) Data for Payback Years Net cash flow Cumulative CF Part of year required for payback