Question 1 Which of the following should be treated as incremental cash flows when deciding whether to invest in a new manufacturing plant? The site is already owned by the company but existing buildings would need to be demolished. a) The market value of the site and existing buildings. b) Demolitions costs and site clearance. c) The cost of a new access road put in last year. d) Lost earnings on other products due to executive time spent on the new facility. e) A proportion of the cost of leasing the president's airplane. f) Future depreciation of the new plant. g) The reduction in the firm's tax bill resulting from depreciation of the new plant. h) The initial investment in inventories of raw materials. i) Money already spent on the engineering design of the new plant. Question 2 Millie's Ice Cream is considering a proposal to start making its own milk chocolate ho fudge topping. The project would make use of an existing warehouse which is currently rented out to a neighboring firm. This year's rental charge on the warehouse is $100,000 and this number is expected to grow at 4% per year. In addition to using the warehouse the proposal envisages an investment in plant and equipment of $1.2 million. Depreciation is $120,000 per year. Millie's expects to terminate the project after eight years. As a financial consultant, you expect that Millie's can resell the plant and equipment then (i.e., in t = 8) for $400,000. The project requires an initial (t = 0) investment in working capital of $350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Assume the hot fudge sales do not impact other aspects of Millie's business. This year's sales of hot fudge are expected to generate $4.2 million and grow thereafter by 5% per year. Costs are expected to be 90% of sales. The corporate tax rate is 35% and the cost of capital is 12%. What is the NPV of Millie's project