Part A) You are considering buying a new machine to help make additional product. The new machine costs $162,000 and expected to operate until the end of the 5^th year, when it will be sold for $50,000. The machine is a 7 year MACRS asset, and the additional labor, materials and overhead costs associated with operating the machine are given in the income statement below. The Machine is expected to increase sales in years 1-5 by 1150, 1500, 1500, 2000,&1,400 units (@$100 per unit), respectively. Assume the companys cost of capital MARR is 12% and its marginal tax rate is 40%. Fill in the income and cash flow statements below with the correct information in the question marked boxes. Then determine if the company should undertake the project? Show all your work

Income statement
End of Year	0	1	2	3	4	5
Revenue		?	?	?	?	?
Expenses:
Labor		$60,000	$60,000	$60,000	$60,000	$60,000
Materials		$20,000	$20,000	$20,000	$20,000	$20,000
Overhead		$10,000	$10,000	$10,000	$10,000	$10,000
Depreciation		?	?	?	?	?
Taxable Income		$1,857	$20,327	$31,662	$89,758	$42,771
Income Taxes (40%)		$743	$8,131	$12,665	$35,903	$17,108
Net Income		$1,114	$12,196	$18,997	$53,855	$25,663
Cash Flow Statment
Operating Activities:
Net Income		$1,114	$12,196	$18,997	$53,855	$25,663
Depreciation	?	?	?	?	?	?
Investing Activities:
Milling Machine	($162,000)
Salvage Value						$50,000
Gains tax						?
Working Capital	($25,000)					$25,000
Financing Activites:
Net Cash Flow	?	?	?	?	?	?

Part b) The company from the previous problem is certain of its demand for the first 2 years of the project, but it is concerned that its forecasted demand for new units in years 3,4,5 is subject to error. Assuming any % error in year 3 will all be the same in year 4 & 5, what affect might 5% and 10% errors have on the company' decision to undertake the project (i.e. find the PW with5% and 10% error). Sketch a simple sensitivity graph involving only demand error in years 3-5 to illustrate your findings. Show all your work