Rio Grande Industries is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by you. The production line would be set up in unused space in Rio's main plant. The machinerys invoice price would be approximately $300,000, another $20,000 in shipping charges would be required, and it would cost an additional $80,000 to install the equipment. The machinery has an economic life of 4 years, and SC has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of $50,000 after 4 years of use.
The new line would generate incremental sales of 1,500 units per year for 4 years at an incremental cost of $110 per unit in the first year, excluding depreciation. Each unit can be sold for $220 in the first year. The sales price and cost are both expected to increase by 2% per year due to inflation. Further, to handle the new line, the firms net working capital would have to increase by an amount equal to 10% of sales revenues. The firms tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 14%.
Calculate year 0 cash flows (depreciable asset + working capital needs)
Calculate CF from salvage value in year 4. Consider profits and taxes.
Forecast the annual working capital investments.
Calculate annual cashflows (also consider working capital investments, salvage, working capital recovery)
Calculate NPV of the project. Should the project be accepted?
Summary data
Cost				$300,000
Shipping				20,000
Installation				80,000
Economic Life				4
Market Salvage Value				50,000
Depreciation Method MACRs				4
Annual Unit Sales				1500
Unit sales price				200
Unit cost				100
Net working capital required (NWCt = 10%(Salest+1)				10%
Tax rate				40%
Project cost of capital (WACC)				14%
Inflation rate (on unit prices and costs)				2%
Annual Depreciation (MACRS -3):
Year	%
1	33%
2	44%
3	15%
4	7%

SOLVE in excel, please show formulas