Murphys Motors is considering a new product line to fulfil a four-year contract. The new product line will require an initial fixed asset investment in a machine of $160,000 with the machine to be depreciated straight-line to zero over its four-year tax life (i.e. fully depreciated with no book value at the end of four years). An initial investment in net working capital (NWC) of $90,000 will also need to be paid, with the assumption that the NWC will be returned to the firm in full at the end of year four. The project is estimated to generate $XXX,XXX [your student ID*] in annual sales. It is estimated that 45,000 units will be produced each year and the cost per unit (excluding depreciation expense) will come to $10. At the end of the four years it is estimated the machine could be removed from the factory and sold for $30,000. The tax rate is 30% and the required rate of return on the project is 8%. * please use your student ID as the sales figure for each year for example if your student ID was 123456, your annual sales figure would be $123,456. Required: (Please draw up a table to assist with the calculations and formatting of answer. Please show all workings to maximise marks). A. Calculate the total project cash flows for the new product line. (3.5 marks) B. Calculate the Net Present Value (NPV) of the proposed investment. (2 marks) C. Based on the NPV calculated in part B above would you advise Murphy to accept or reject the project and provide a reason why? (1.5 mark) D. Calculate the payback period for this project and advise whether Murphy Should use the payback period as the primary criteria for evaluating projects. (1 mark)

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