please do the work by hand, use the formula from the formula sheet

17. Hand Clapper, Inc. is considering a 4-year project to manufacture clap-command garage door openers. The project requires an initial investment of $18 million in machinery that will be depreciated using 3-year MACRS. The 3-year MACRS depreciation rates by year are Year 1 - 33.33%; Year 2 - 44.45%; Year 3 - 14.81%; and Year 4: 7.41%. The machinery will have no salvage value at the end of 4 years and will be housed in a rented facility. Last year, Hand Clapper paid rent of $500,000 to use the facility for the next four years. Hand Clapper has been offered $600,000 to sublet the property for the next 4 years. The project also requires an initial investment (i.e., an investment today) in net working capital of $950,000; Hand Clapper will fully recover this amount at the end of the project. The company believes that on an annual basis it can generate $12.4 million in revenues with $4.5 million of costs. The tax rate is 21% and the discount rate is 13%. a. What is the clap-command garage door opener project's NPV? You must show your work. b. In addition to the base project in a. above, Hand Clapper has the option to abandon the project at the end of 3 years. If it abandons the project, it can sell the machinery for $9.9 million. What is the value of the option to abandon the project? For how many years should Hand Clapper manufacture clap-command garage door openers? You must show your work. 1 Formula Sheet Periodic compounding: Price of a dollar at time t DF, =,=) Present value of future amount PV. = FV4 x DF, Present value of a perpetuity (in arrears) PVo perpetuity = Present value of a growing perpetuity (in arrears) PV. Growing Perpetuityr-g Present value of a T-period annuity (in arrears) PVo Annuity = f*(1+1) tar Present value of a T-period growing annuity (in arrears) PV,Growing Annuity-r-g r -g Effective annual rate (EAR) EAR = (1+" - 1 Continuous compounding: Price of a dollar at timet DFot = e-rt PV = FV4 x DF, Present value of future amount PV,Perpetuity er - 1 Present value of a perpetuity (in arrears) Present value of a growing perpetuity (in arrears) PV, Growing Perpetuity er-g) - 1 Present value of a T-period annuity (in arrears) Pro samuey = en cas caixen Present value of a T-period growing annuity (in arrears) PVO, Growing Annuity - pr-g) - 1 er-g) - 1 eragiXe-r-9) Other: Expected Value of 8 E(F) = Probe x x NPV = a 4 NPV