Q. No. 3 The Ebitts Field Corp. manufactures baseball gloves. Charlie Botz, the company's top salesman, has recommended expanding into the baseball bat business. He has put together a project proposal including the following information in support of his idea. 2 489.48 162.69 New production equipment will cost $75,000, and will be depreciated straight line over five years. Overheads and expenses associated with the project are estimated at $20,000 per year during the first two years and $40,000 per year thereafter. There is enough unused space in the factory for the bat project. The space has no alternative use or value. Setting up production and establishing distribution channels before getting started will cost $300,000 (tax deductible). Aluminum and Wood bats will be produced and sold to sporting goods retailers. . Wholesale prices and incremental costs per unit (direct labor and materials) are as follows: Wood Price Cost Aluminum $18 11 $12 9 Charlie provides the following unit sales forecast is (000): 1 4 6 Year Aluminum Wood 6 2 9 12 3 15 14 18 20 5 20 22 22 24 8 . The sixth year sales level is expected to hold indefinitely. Receivables will be collected in 30 days, inventories will be the cost of one month's production, and payables are expected to be half of inventories. Assume no additional cash or accruals are necessary. (Use 1/12 of the current year's revenue and cost for receivables and inventory.) Ebitts Field's marginal tax rate is 35% and its cost of capital is 12%. a. Develop a six-year cash flow estimate for Charlie's proposal. Work to the nearest $1,000. b. Calculate the project's NPV, assuming a six-year life. Is the project acceptable? (15 marks)