PROJECT VALUATION Glentech Manufacturing is considering the purchase of an automated parts handler for the assembly and test area of its Phoenix, Arizona, plant.

The handler will cost $$250,000$ to purchase plus $$10,000$ for installation. If the company undertakes the investment, it will automate part of the semiconductor test area and reduce operating costs by $$70,000$ per year for the next ten years. Five years into the life of the investment, however, Glentech will have to spend an additional $$100,000$ to update and refurbish the handler. The investment in the handler will be depreciated using straight$-$line depreciation over ten years, and the refurbishing costs will be depreciated over the remaining five$-$year life of the handler $($also using straight$-$line depreciation$).$

In ten years, the handler is expected to be worth $$5,000,$ although its book value will be zero. Glentech's tax rate is $30\%,$ and its opportunity cost of capital is $12\%.$ Exhibit P$2-10\mathrm{.}1$ contains cash flow calculations for the project that can be used in performing a DCF evaluation of its contribution to firm value. Answer each of the following questions concerning the project:

a$)$Is this a good project for Glentech? Explain your answer.

b$)$ What can you tell about the project from the NPV profile found in Exhibit P$2-10\mathrm{.}1?$

c$)$ Add a driver for "Growth in reduction in operating costs"; this growth is a one time shift, for example, if we thought operating costs would decrease by $$1$ each year and the user enters $0\mathrm{.}2$ for this driver, the decrease would be $$1\mathrm{.}2$ each and every year starting in year $2.$ Initially there is no change in savings but I want you to do a part c$)$ where you evaluate the NPV and IRR of the cash flows with a $3\mathrm{.}5\%$ growth starting in year $2.$ Note: this is a one$-$time shift in the estimated savings not something that compounds.

d$)$ Calculate the periodic discount factors a few rows below your cash flows. A periodic discount factor for year t is $1/(1+$r$)^$t$.$ Demonstrate how to use the discount factors to get the NPV $($you will get exactly the same answer as when you appropriately use the builtin Excel functions!$)$