Mississippi Manufacturing Company is considering launching a product line extension, which is a new

and improved version with enhanced product features and environmentally friendly packaging.

Below are key estimates and assumptions associated with the project:

Project life $($in years$)4$

Initial cost of equipment $ $2,500,000$

Initial shipping charges for equipment $$20,000$

Initial cost of installation of equipment $$15,000$

Initial Increase in working capital $$100,000$

Gross sales from the new product line in year $1$ $ $1,250,000$

Gross sales increase after year $1($per year$)5\%$

Operating costs $($as a $\%$ of gross sales$)30\%$

Market research before the start of the project $ $75,000$

Weighted average cost of capital $13\%$

Marginal corporate income tax rate $31\%$

It is estimated that the new product will cannibalize gross sales by an amount of $$200,000$ per year. The

total net working capital will be $10\%$ of gross sales for each year of the project$$s life. The new equipment is

fully depreciated on a straight$-$line basis over the life of the project and is estimated to have a salvage value

of $$500,000$ in $4$ years.

QUESTIONS:

$1.$ Prepare the cash flow forecast for this project in Excel. Your solution must use the cash flow format

used in class and show all the components of the cash flows clearly. $(83$ points allocated across

the components of the solution$)$

$2.$ Using the cash flow forecast, calculate the NPV$,$ IRR, Profitability Index, and Payback Period for

the project. Your solution must show all calculations clearly. $(3$ points each for $12$ points$)$

$3.$ Based on the above analysis, would you recommend the new product line extension? Justify your

recommendation with a one$-$paragraph narrative. You must clearly state the justification. $(5$ points$)$

PLEASE UPLOAD$/$SEND A PICTURE TO CHEGG

$1.$ The Excel spreadsheet solution or formulas used