Reporting and Valuation for Undergraduates Part II: Capital Budgeting and Uses of Financial Statements Voice-Soft Inc. is trying to determine whether to open a new product line, Voice-Write, a speech-to-text product, which is expected to be competitive for four years. The cost of the new capital equipment including shipping and installation is $3100. The equipment will last for 4 years. They use simple straight line depreciation and the market value of the equipment at the end of the preiect or it's salvage value) is $400. For 2013 to 2016, sales are expected to be $4000, 4000, 4200, and 4200; and operating expenses, $2800, $2800, $2700, $2700. The company is expecting to lose before tax operating income of $200 per year due to Voice-Write cannibalizing its current product, Voice-Speak. Voice-Soft has a tax rate of 40% and a weighted average cost of capital (WACC) of 12% 1. Complete the Project cash flow statement below and then answer questions 2-4 2012 2013 2014 2015 2016 Sales Operating Expenses Opportunity Costs Depreciation Operating Income (EBIT) Taxes Operating Income after taxes Depreciation Cash Flow Salvage Value Salvage Tax Net Salvage Value Initial capital Investment Proiect Cash Flow Determine the Net Present Value Determine the IRR Should Voice-Soft make the investment and why? Explain any limitations or concerns you may have about the acceptance or rejection of this project. What impact does acceptance or rejection of this project have on the value of Voice-Soft asa firm and on Voice-Soft's stock? Explain 2. 3. 4. 5