Schubert Advisors is implementing a new marketing program.Increased sales from the program are expected to last for the next four years and are estimated at $320,000 in year 1, $360,000 in year 2, $400,000 in year 3, and $440,000 in year 4. Schubert is deciding between two agencies to design the program. Firm Green charges $720,000 upfront for program design and will provide yearly advertising in its ongoing implementation.Firm Blue charges $560,000 for program design but Schubert will have to cover the yearly advertising cost of $40,000 on its own.Schubert?s weighted average cost of capital is 9%.Assume all cash flow estimates are net of taxes.

a. Estimate the cash flows for the program if Schubert uses Firm Green and if Schubert uses Firm Blue and then calculate the following for both:

i. Payback period

ii.Discounted payback period

iii.Net present value

iv.Internal rate of return

v.Profitability index

b.Should Schubert hire Firm Green or Firm Blue?Which capital budgeting method(s) calculated in part (a) did you use to make your decision?Explain why.

3. McNichol's 2016 balance sheet is shown below. All values are in millions. Sales in 2016 were $320M and Net Income was $16M. They paid 40% of Net Income out as dividends. Balance Sheet as of 12/31/2016 Cash $ Accounts Receivable Inventory Total Current Assets $ 128 Net Fixed Assets Total Assets 16 48 64 Accounts Payable Notes Payable Total Current Liabilities 160 $ 288 $ 32 20 ____ $ 52 Long-Term Debt Common Stock Retained Earnings Total Liabilities & Equity 48 80 108 $ 288 Assume that McNichol used their fixed assets at full capacity in 2016 and that projected sales for the coming year are $368M. a. Calculate McNichol's external financing needed (EFN) for 2017. Answer the following independent questions in words only: b. Suppose fixed assets had been used at only 50% capacity in 2016. How would that affect McNichol's additional need for funds? Briefly explain. c. Suppose McNichol plans to increase its capital intensity by automating more of its production process. How would this affect the additional need for funds? Briefly explain. d. Would you expect McNichol's financing needs to increase or decrease if they institute a just-in-time inventory process that allows them to hold half the inventory levels that they normally have in the past? Briefly explain. e. If McNichol's profit margin increases at the higher levels of sales, will additional funding needs change from what you calculated in (a)? Briefly explain