Scenario You have a full-time job, but want to bake and sell cupcakes on evenings and weekends. You live in an apartment, so you will need to rent a bakery space and spend some money up front for special equipment. You want to know if this idea is worth pursuing. You estimate the following items related to the project: Cupcake Bakery Project Description Project life (years) Required return 3 20% Sales Data Unit Sales (annual) Unit Price 8,650 $2.50 Cost Data Unit cost Bakery rent (annual) Equipment cost (one-time purchase) Depreciation expense (annual) Net working capital (annual) Tax rate $1.00 $12,000 $900 $300 $1,500 35% Year 0 Total Capital Requirements Net working capital + equipment $2,400 Change in Net Working Capital Year 0 Year 1 Year 2 Year 3 -$1,500 $0 $0 $1,500 Use Excel to 1. Prepare pro forma income statements for three years 2. Prepare pro forma cash flows from assets for three years 3. Calculate the project's NPV (use Excel function) 4. Calculate the project's IRR (use Excel function) 5. Insert a text box in your spreadsheet, state whether you accept or reject this project, and briefly explain your rationale. Income Statement Sales Cost of Goods Gross Profit Fixed Costs Depreciation EBIT=Gross profit fixed costs - depreciation Tax Expense=EBIT*tax rate Net Income Cash Flow from Assets Operating cash flow=EBIT+ depreciation -tax expense Change in NWC (see Project Description) Capital spending Total project cash flow Excel Functions =NPVC =IRRO