Part A Ross corporation examines the introduction of a new product. The initial investment is estimated at 20 million. Furthermore, the net working capital requirements of the project requires are equal to 20% of the projected annual sales at the beginning of each year. The base scenario concerning the project assumes also the following: Product selling price first year 45,000 per unit Variable costs first year 35,000 per unit Fixed costs first year 2 million After first year, price, variable and fixed costs will increase with inflation Estimated inflation rate 4% Projects life 4 years Estimated sales per year 1,200 units Depreciation rates per year: 20%, 32%, 19.20%, 11.52% The company estimates that the equipment will have at the end of the projects 4-year life a market value of 800,000. Tax rate 35%. Cost of capital 12% a. Estimate the projects NPV, IRR, and pay-back. b. Besides the base scenario you are required to perform a sensitivity analysis, in order to determine the changes of the Net Present Value to variation in certain key variables of the project, namely the selling price of the new product, its variable costs per unit, and finally the number of units sold. You should assume a 10% and 20% change of the key variables above and below the base-case scenario values. Include a graph in your analysis. ll calculations should be provided Part B Assume that tax authorities decided to shorten depreciation lives for tax purposes. Discuss this would affect the NPV and the IRR of an investment project (assuming all other parameters of the project remain unchanged). (<200 words)

This is how the question was given. How about examining all alternatives?