Project A: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $130,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $250,000. The project will last 6 years at which time the market value for the equipment will be $150,000. The project will project a product with a sales price of $20.00 per unit and the variable cost per unit will be $10.00. The fixed costs would be $200,000 per year. Because this project is very close to current products sold by the business, management has expressed some favoritism towards this project and as allowed for a reduced rate of return of 2 percentage point below its current WACC as the valuation hurdle it must meet or surpass. Years 2014 2015 2016 2017 2018 2019 Forecasted Units Sold 70,000 100,000 65,000 70,000 65,000 55,000

ORIGINAL SCENARIO
Initial Cost	$ 2,000,000	Price	$ 20.00	Tax Rate	40%
Installation Cost	$ 130,000	Variable Cost	$ 10.00	Required Return	2.00%
Increase in NWC	$ 250,000	Fixed Cost	$ 200,000	WACC	11.50%
Salvage Value	$ 150,000
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Units sold		70,000	100,000	65,000	70,000	65,000	55,000
Depreciation Rate		20.0%	32.0%	19.2%	11.5%	11.5%	5.8%
Years		1	2	3	4	5	6
Sales		$1,400,000	$2,000,000	$1,300,000	$1,400,000	$1,300,000	$1,100,000
Variable Cost		$700,000	$1,000,000	$650,000	$700,000	$650,000	$550,000
Fixed Cost		$200,000	$200,000	$200,000	$200,000	$200,000	$200,000
EBITDA		$700,000	$1,000,000	$650,000	$700,000	$650,000	$550,000
Depreciation		$400,000	$640,000	$384,000	$230,400	$230,400	$115,200
EBIT		$300,000	$360,000	$266,000	$469,600	$419,600	$434,800
Tax Expense		$120,000	$144,000	$106,400	$187,840	$167,840	$173,920
Net Income		$180,000	$216,000	$159,600	$281,760	$251,760	$260,880
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Operating Cash Flow		$580,000	$856,000	$543,600	$512,160	$482,160	$376,080
Capital Spending Cash Flow	$ 2,230,000	0	0	0	0	0	$0
Net Working Capital Cash Flow	$ 250,000	250,000	250,000	250,000	250,000	250,000	$ 250,000
Total Cash Flows	$ 1,880,000	$2,460,000	$856,000	$543,600	$512,160	$482,160	$376,080
Total Cumulative Cash Flows	$ 1,880,000	$4,340,000	$5,196,000	$5,739,600	$6,251,760	$6,733,920	$7,110,000
Internal Rate of Return			Payback Period
Net Present Value			Profitability Index
PRICE REDUCTION SCENARIO
Initial Cost		Price		Tax Rate
Installation Cost		Variable Cost		Required Return
Increase in NWC		Fixed Cost
Salvage Value
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Units sold
Depreciation Rate
Years		1	2	3	4	5	6
Sales
Variable Cost
Fixed Cost
EBITDA
Depreciation
EBIT
Tax Expense
Net Income
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Operating Cash Flow
Capital Spending Cash Flow
Net Working Capital Cash Flow
Total Cash Flows
Total Cumulative Cash Flows
Internal Rate of Return			Payback Period
Net Present Value			Profitability Index
VOLUME REDUCTION SCENARIO
Initial Cost		Price		Tax Rate
Installation Cost		Variable Cost		Required Return
Increase in NWC		Fixed Cost
Salvage Value
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Original Volume Sold
Reduced Volume Sold
Depreciation Rate
Years		1	2	3	4	5	6
Sales
Variable Cost
Fixed Cost
EBITDA
Depreciation
EBIT
Tax Expense
Net Income
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Operating Cash Flow
Capital Spending Cash Flow
Net Working Capital Cash Flow
Total Cash Flows
Total Cumulative Cash Flows
Internal Rate of Return			Payback Period
Net Present Value			Profitability Index