Please refer to the accompanying spreadsheet file for the analysis related to a hog feed project. United Feed is considering a proposal to produce hog feed. The hog feed project requires an investment in new plant and equipment of $2.20 million. This could be depreciated for tax purposes straight-line over 10 years to zero salvage value. However, the plant and equipment will be sold when the project is terminated for $1.8 million. The project will generate sales for 3 years and will be terminated at the end of year 4. Year 1 sales of hog feed are expected to be 10,000 tons at $520 per ton, and thereafter quantity is forecasted to grow by 4% a year while the price remains constant. Costs are expected to be $416 per ton. Profits are subject to tax at 40% and the cost of capital is 13%. The project requires the following amounts in working capital, $450,000, $520,000, $540,800, $562,432 in year 0 year 3, respectively and the accumulated level of working capital in year 3 will be recovered in year 4. Determine the value of shaded cells in the Page 3 of 3 spreadsheet file and decide if United Feed should invest in this project? Also include a set of concerns or questions for further analysis.

0 Quantity sold (tons) Price per ton Change in quantity Change in price Costs per ton 10,000 520.00 10,400 520.00 4.00% 0.00% 416.00 10,816 520.00 4.00% 0.00% 416.00 416.00 1 4 Investments Plant and equipment Accumulated depreciation Adjusted basis Net working capital Change in net working capital Total cash flow of investment 2,200,000 1,696,000* 220,000 440,000 660,000 1,980,0001,760,0001,540,000 450,000 -450,000 -2,650,000 520,000 -70,000 -70,000 540,800 -20,800 -20,800 562,432 -21,632 21,6322,258,432 562,432 4 Sales Expenses Depreciation Income before taxes Tax Net income 5,200,000 5,408,0005,624,320 -4,160,000 -4,326,400-4,499,456 -220,000-220,000-220,000 904,864 -328,000 344,640-361,946 542,918 820,000 861,600 492,000 516,960 Sales Expenses Taxes Operating cash flow 05,200,0005,408,0005,624,320 04,160,000-4,326,400-4,499,456 0-328,000-344,640-361,946 Total cash flow of investment Total cash flow of project NPV Plant and equipment Accumulated depreciation Book value 2,200,000 660,000 1,540,000 Sale of plant and equipment Book value Gain or loss from sale Tax on sale Aftertax salvage value 1,800,000 1,540,000 260,000 104,000 1,696,000