Not done in excel: Pen, Paper (explain answers)

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The company Smart Ine, is a company that produces T-Shirts in Chicago area. The results of the company, for the past couple of years, have been presented in the annual financial statement. \begin{tabular}{lr} Sales (800000 units 185) & 144000005 \\ Variable Costs (800000 units 105) & (8000000) \\ Fixed Cost & (6000000) \\ \hline Annual Profit (loss) & 400000 \end{tabular} Experts suggest to the board of directors to replace the old equipment by a new one in order to improve the production and the profitability of the company. The price of the T-shirts will remain the same. However, the variable cost per unit will decrease by 10% while the fixed costs increase by 20%. Considering the following information, the board of directors asks you to evaluate this project for the company. - The new equipment would increase the level of production by 30%. The purchase (including the installation) of the new equipment requires an initial investment for an amount of 90000005 . The old equipment can be sold in the beginning of project on the market for 5000005 (For simplification, consider this amount as an exchange value). - The new equipment will be sold for 15000005 in 10 years (end of project). The project also requires major renovations of the factory building for a total amount of 15000005 (The amount of major renovations is depreciable with declining method under the tax Iaw). - The company also has to build a new building at the beginning of the project for an amount of 18000005 which will be sold at the end of the project for 22000005 . This amount is depreciable with declining method. - The project also requires an additional investment in new Computers and fumiture for a total amount of 5000005 in the beginning of project. Computers and fumiture have no saivage value. - At the present, Smart Ine. is renting a warehouse for the annual rent of 1000005 (paid at the end of year). If the company undertnkes the new project, they will need to cancel the lease of the old warehouse and to rent a larger warehouse for the annual rent of 300 0005 (to be paid annually at the end of each year). - The project also requires 5 new technicians today with annual salary of 800005 for each. - Given the performance of new equipment, Smart Inc could lay off 40 employees whose annual salaries is 500005 . The lay-offs will oblige the company to pay lay-off premiums for the total amount of 200005 to each employee today which is tax deductible. The corporate tax rate is at 40%. The new equipment and new heavy machinery are in the category with a depreciation of 20%, the major renovations are depreciated at 25%, the new building is depreciated at 10%, all items depreciations are calculated with decreasing (declining) method. The computers and fumiture are depreciated by lineer method ot 10%. Investors require 12% retum on this type of project. Given this information, answer the following questions: Questlons: 1. Identify ONB BY ONB each item of the investment and calculate the total investment in this project. 2. Identify ONE BY ONE and calculate separately the present velue of each periodical cash flow (annual incomes and expenses) during the project. 3. Identify ONE BY ONE and calculate separately the present value of ecech each flow of the end of the project. 4. Calculate the Net Present Value of this project (You just haysto add up your responses in 1,2 and 3 for this one). 5. Calculate the maximum amount that the company can pay for the new equipment in order to keep the project profitable