Part D

e: Work must be completed by hand. No Excel spreadsheets will be accepted, Wolverine Products is planning to introduce a new Brutus Buckeye punching bag. The product will be manufactured in an unused facility that is fully depreciated. Because the product 15..sossidersed..to..be a "fad", the project will be operational for only the next five yearn. Following are the details of the project: - The project requires the purchase of new equipment at an invoice cost of $860,000, with an additional $65,000 in shipping expense. To rake room for the equipment, there wil1 need to be some modification made to the facility at an expense of $25,000. - The capital investment will be depreciated using a 5-year macrs schedule. The depreciation schedule is as follows: 205, 328, 194; 124;114; and 64. - If the project is undertaken, the company expecto inventory and accounts receivable to immediately increase by $12,500 and $33,000, respectively, and accounts payable to increase by $13,500. - The firs has apent $50,000 to develop and market teat this product. - The project is expected to generate sales of 7,500 units in the first year; 17,500 units in year 2,25,000 units in year 3,40,000 units in year 4; and 15,000 units in year 5 . The sales price per unit will be $15 in year 1 , increasing at a rate of $0.50 per year. - For the firat two years, variable costa are expected to be 504 of revenue. Beginning in year 3 , economies of scale will result in a decline in variable costs to 406 of revenue. - Marketing 6 diatribution costa are expected to be 25 percent of annual revenue. - Addition of the new production line will increase overall efficiency in the plant for an expected annual cost savings of $135,000. - To undertake the project, the firm will need to borron $1,000,000 at an annual interest rate of 6 percent, - The equiptrent la expected to have a salvage value (before-tax) of The equip, 000 . - The firm's tax rate ia 404 . - The firm has a weighted average cost of capital of 9 percent. a. What are the cash floma aasoelated whth the project for each year? b. What in the NPy of the project? c. What is the internal rate of return on the project? d. Would you undertake the project? Why or why not