Project 2 Calculations must be done in Excel - You must create your own spreadsheet (do not copy and paste someone else's). This question should be done using Method 1 as outlined in lecture 6 (i... Tax Effects, then Cash Flows then NPV). As the financial advisor to All Star Manufacturing you are evaluating the following new investment in a manufacturing project: - - The project has a useful life of 8 years. - Land costs $12m and is estimated to have a resale value of $25m at the completion of the project. - Buildings cost $12m, with allowable depreciation of 8% pa reducing balance and a salvage value of $10m. - Equipment costs $5m, with allowable depreciation of 15% pa reducing balance and a salvage value of $1m. An investment allowance of 20% of the equipment cost is available. - Revenues are expected to be $14m in year one and rise at 5% pa due to growth. - Cash variable costs are estimated at 35% of revenue. - Cash fixed costs are estimated at $3.5m pa. - The firm has spent $2m on research and development for the project. - Managerial salaries of $900,000 will be allocated to the project, but these managerial positions will be unaffected by the acceptance of the project. - An amount of $200,000 has been spent on a feasibility study for the new project. - The project is to be partially financed with a loan of $14m to be repaid annually with equal instalments at a rate of 3% pa over 8 years. - Except for initial outlays, assume cash flows occur at the end of each year. - The tax rate is 30% and is payable in the year in which profit is earned. - The after-tax required return for the project is 12% pa. Required (a) Calculate the NPV. Is the project acceptable? Why or why not? Explain and defend your processes, answer, and calculations clearly. (b) Conduct a sensitivity analysis showing how sensitive the project NPV is to: a. revenue growth of 0% and 10% b. fixed cost p.a. increase by $1m and decrease by $m c. the required rate of return increase by 2% and decrease by 2%. Run all above sensitivities separately on a stand-alone basis. Explain and defend your processes, answer, and calculations clearly. Show the NPV change compared to the original calculations