Our award-winning folding carton structural designers, working with the latest technologies, bring you innovative paperboard folding carton structures - alternatives that can address your unique goals and take your product packaging to the next level. Whether you know exactly how you want your folding carton structure to look, or you need a partner to generate unique concepts - we're with you. Our structural designers focus first on understanding the unique qualities of your product. Then they produce innovative structural concepts that help communicate value to the customers you are trying to reach. To help you evaluate new structural designs for folding cartons, the company is considering acquisition of new IntriCut to expand its production capacity.

The cost of IntriCut is $ 2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $ 50,000 feasibility study to analyze the decision to buy the IntriCut, resulting in the following estimates:

Marketing: Once the IntriCut is operational next year, the extra capacity is expected to generate $10 million per year in additional sales, which will continue for the 10-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $ 5 million this year. As with APC's existing products, the cost of goods for the products produced by the IntriCut is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1 million during the life of the project, including year 0.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $ 2 million per year.

Accounting: The IntriCut will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 15 % of revenues and payables to be 10 % of the cost of goods sold. APC's marginal corporate tax rate is 35%.

a. Determine the incremental earnings from the purchase of the IntriCut.

b. Determine the free cash flow from the purchase of the IntriCut.

c. If the appropriate cost of capital for the expansion is 10 %, compute the NPV of the purchase.

d. While the expected new sales will be $ 10. million per year from the expansion, estimates range from $ 8.0 million to $ 12.0 million. What is the NPV in the worst case? In the best case?