Orange Inc., a technology company is considering the feasibility of a new line of selfie toasters which aims at making breakfast a more interesting experience.

$$Why eat plain old toast when you could make toast with a picture of your face $($or someone else$$s face$)$ on it$.$ This selfie toaster lets you do just that $$

Based on a market survey, Orange Inc. projects unit sales as follow

Year

Unit sales

$13,000$

$25,000$

$36,000$

$46,500$

$56,000$

$65,000$

$74,000$

$83,000$

The new selfie toaster will sell for $$120$ per unit to start. When competition catches up after three years, however, Orange Inc anticipates that the price will drop to $$110.$

The selfie toaster project will require $$20,000$ in net working capital at the start. Subsequently, total net working capital at the end of each year will about $15\%$ of sales for that year. The variable cost per unit is $$60,$ and total fixed costs are $$25,000$ per year. A product like this typically only has an $8$ year$-$life.

It will cost about $$800,000$ to buy the equipment necessary to begin production. This equipment will be depreciated using the straight$-$line method. There is no salvage value. The corporate tax rate is $34\%$

i$.$ The required return in $15\%.$ Based on the information, should Orange Inc. proceed with this project? Calculate NPV and IRR

ii$.$ Re$-$evaluate the NPV and IRR with the assumption that the variable cost of per unit if the cost is expected to increase by $$70$ per year. What if it decreases by $$50$ per year?