Question No 8: Capital Budgeting Mini Case Study [Bonus, 25-30 points] The Sallano Corporation, manufacturer of office furniture, has received a request from Global Retailers Inc. for a special project. The Global Retailers wants to buy 20,000 units of specially designed desk lamps each year for the next four years. To produce the new product Sallano will have to buy new machinery costing 800,000. The machine will be depreciated towards a zero salvage value on straight line basis over its economic life of 5 years of tax purposes. The firm will sell the machine after four years at an estimated price of 60,000. Operating expenses for the new product, not including depreciation, will be 120,000 per year. An investment of 35,000 in raw material inventory will be required initially, although the amount will be recovered at the end of the project. The firms tax rate is 30% and its cost of capital is 16%. Global retailers has announced a bench mark price of 25 for the product, but they will award the project to the lowest bidder. 8a. What are the annual net cash flows and NPV of the project at the benchmark price? [25 pts] 8b. (bonus, 5 pts) What is the lowest price to be charged for the product by Sallano in order not to reduce the value of Company?