Plank Products is considering the introduction of a new product. The company currently pays 34% tax on their cost of capital is 15%. The project is expected to last 5 years and then be terminated. The following information describes the new project:

Cost of new plant and equipment $7,900,000 Shipping and installation cost $100,000

Annual deprecation $1,600,000

UNIT SALES: Year Number of units 1 70,000 2 120,000 3 140,000 4 80,000 5 60,000

Sales price per unit: $300 per unit (in years 1 through 4); $260 per unit (in year 5)

Variable cost per unit: $180 per unit

Annual fixed cost: $200,000 per year (years 1 5)

Working capital requirements:

There will be an initial working-capital requirement of $100,000 just to get production started. Finally, all working capital is liquidated at the termination of the project at the end of year 5.

The company incorporates risk in projects by using appropriate risk-adjusted rates as follows:

Purpose and Adjusted required rate of return are as follows-

1. Replacement decision - Cost of capital + 1%
2. Modification or expansion of existing product line - Cost of capital + 2%
3. Project unrelated to current operations - Cost of capital + 5%
4. Research and development operations - Cost of capital + 10%

Prepare a cash flow budget for this project in excel. Assess the feasibility of the project.

Determine whether this project should be accepted or not.