Security Manufacturing, Inc. is a producer of surveillance systems. Its current line of surveillance systems are selling excellently. However, in order to cope with the foreseeable competition from other similar products, SM spent $6,200,000 to develop a new line of HD surveillance systems (new model development cost). The comprehensive 1440p HD surveillance system model can be used very well for any small home or business. As a result of the advanced HD analog technology made up of a 4-channel 4K Ultra high definition MPX digital video recorder with two 1440p bullet and two 1440p dome weatherproof security cameras, the system can produce videos of remarkable level of clarity and details at the marvelous 2560x1440 resolution for live viewing and recording. This new and professional-grade system can also provide users with sharp HD resolution and outstanding night visions of up to 250 feet. The HD MPX DVR comes with a hard drive size of 5TB and can support a hard drive up to 12TB of Mideo storage. Using the MediaConnect coaxial cables, the MPX system does not only feature HD recording but also facilitates remote Mewing and motion notifications. The company had also spent a further $1,000,000 to study the marketability of this new line of HD surveillance systems (marketability studying cast) SM is able to produce the HD surve lance systems at a variable cost of $60 each. The total fixed costs for the operation are expected to be $10,000,000 per year. SM expects to sell 3,300,000 units, 4,500,000 units, 3,600,000 units, 2,200,000 units and 1,000,000 units of the new HD surve lance system model per year over the next five years respectively. The HD surveillance systems will be selling at a price of $150 leach. To launch this new line of production, SM needs to invest $35,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $3,800,000 as at the end of the 5 year project life. SM is planning to stop producing the existing surveillance system model entirely in two years. Should SM not introduce the HD surveillance system, sales per year of the existing surveillance system model will be 1,800,000 units and 1,400,000 units for the next two years respectively. The existing model can be produced at variable costs of $50 each and total fixed costs of $7,500,000 per year. The existing surve lance system model is selling for $115 each. If SM produces the HD surveillance system model, sales of existing model will be eroded by 1,080.000 units for next year and 1.190,000 units for the year after next. In addition, to promote sales of the existing model alongside with the HD surve lance system model, SM has to reduce the price of the existing model to $85 each. Net working capital for the HD surveillance system project will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there we be no Initial NWC required The first change in NWC is expected to occur in year 1 according to the sales of the year. SM is currently in the tax bracket of 35 percent and It requires a 20 percent returns on all of its projects. The firm also requires a payback of 3 years for all projects You have just been hired by SM as a financial consultant to advise them on this HD surveillance system project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month. What is/are the sunk costis) for this HD surveillance system project? Briefly explain. You have to tell what sunk cost is and the amount of the total suink costs. In addition, you have to advise SM on how to handle such costs What are the cash flows of the project for each year? What is the payback period of the project? What is the Pliprofitability Index) of the project? What is the IRR (Internal rate of return of the project? What is the NPV inet present value) of the project? Should the project be accepted based on Payback PI IRR and NPV? Briefly explain. Question 1 30 pts Requirement: You have to provide a summary (must be (i) 350 words or more and (ii) in your own words) of the case background description including the information contained in the paragraphs about Leisure Manufacturing, Inc. and the expert grill project as well as what you are asked to do (as a financial consultant, not as a student) by the questions. [Note: The case details can be found in Part 2 of the case study on McGraw-Hill Connect.] You should write up the summary before you work on the answer to any of the questions in Part 2 of the case study. For the summary, you are required to write in your own words summarizing what are presented in the case study. I want to make sure that you understand everything in this case study and what you are asked to do (as a financial consultant) about it. Only when you understand what are presented and what you are asked to do (as a financial consultant), then you can do well. Right? I do not require you to mention anything about your findings (that is, your answers to the questions) in your summary. You are not required to add anything new (such as your opinions, explanations etc.) to your summary. Penality will be given for anything new you added to your summary. I just want to see whether you understand the case study and whether you understand the requirements or not. Therefore, you are required to restate or summarize in your own words (350 words or more) the background description of this case study as well as what you are asked to do about it only. In your summary, you need to cover the information contained in the paragraphs about Leisure Manufacturing, Inc. and the expert grill project as well as what you are asked to do (as a finance consultant) by the questions. Security Manufacturing, Inc. is a producer of surveillance systems. Its current line of surveillance systems are selling excellently. However, in order to cope with the foreseeable competition from other similar products, SM spent $6,200,000 to develop a new line of HD surveillance systems (new model development cost). The comprehensive 1440p HD surveillance system model can be used very well for any small home or business. As a result of the advanced HD analog technology made up of a 4-channel 4K Ultra high definition MPX digital video recorder with two 1440p bullet and two 1440p dome weatherproof security cameras, the system can produce videos of remarkable level of clarity and details at the marvelous 2560x1440 resolution for live viewing and recording. This new and professional-grade system can also provide users with sharp HD resolution and outstanding night visions of up to 250 feet. The HD MPX DVR comes with a hard drive size of 5TB and can support a hard drive up to 12TB of Mideo storage. Using the MediaConnect coaxial cables, the MPX system does not only feature HD recording but also facilitates remote Mewing and motion notifications. The company had also spent a further $1,000,000 to study the marketability of this new line of HD surveillance systems (marketability studying cast) SM is able to produce the HD surve lance systems at a variable cost of $60 each. The total fixed costs for the operation are expected to be $10,000,000 per year. SM expects to sell 3,300,000 units, 4,500,000 units, 3,600,000 units, 2,200,000 units and 1,000,000 units of the new HD surve lance system model per year over the next five years respectively. The HD surveillance systems will be selling at a price of $150 leach. To launch this new line of production, SM needs to invest $35,000,000 in equipment which will be depreciated on a seven-year MACRS schedule. The value of the used equipment is expected to be worth $3,800,000 as at the end of the 5 year project life. SM is planning to stop producing the existing surveillance system model entirely in two years. Should SM not introduce the HD surveillance system, sales per year of the existing surveillance system model will be 1,800,000 units and 1,400,000 units for the next two years respectively. The existing model can be produced at variable costs of $50 each and total fixed costs of $7,500,000 per year. The existing surve lance system model is selling for $115 each. If SM produces the HD surveillance system model, sales of existing model will be eroded by 1,080.000 units for next year and 1.190,000 units for the year after next. In addition, to promote sales of the existing model alongside with the HD surve lance system model, SM has to reduce the price of the existing model to $85 each. Net working capital for the HD surveillance system project will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there we be no Initial NWC required The first change in NWC is expected to occur in year 1 according to the sales of the year. SM is currently in the tax bracket of 35 percent and It requires a 20 percent returns on all of its projects. The firm also requires a payback of 3 years for all projects You have just been hired by SM as a financial consultant to advise them on this HD surveillance system project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month. What is/are the sunk costis) for this HD surveillance system project? Briefly explain. You have to tell what sunk cost is and the amount of the total suink costs. In addition, you have to advise SM on how to handle such costs What are the cash flows of the project for each year? What is the payback period of the project? What is the Pliprofitability Index) of the project? What is the IRR (Internal rate of return of the project? What is the NPV inet present value) of the project? Should the project be accepted based on Payback PI IRR and NPV? Briefly explain. Question 1 30 pts Requirement: You have to provide a summary (must be (i) 350 words or more and (ii) in your own words) of the case background description including the information contained in the paragraphs about Leisure Manufacturing, Inc. and the expert grill project as well as what you are asked to do (as a financial consultant, not as a student) by the questions. [Note: The case details can be found in Part 2 of the case study on McGraw-Hill Connect.] You should write up the summary before you work on the answer to any of the questions in Part 2 of the case study. For the summary, you are required to write in your own words summarizing what are presented in the case study. I want to make sure that you understand everything in this case study and what you are asked to do (as a financial consultant) about it. Only when you understand what are presented and what you are asked to do (as a financial consultant), then you can do well. Right? I do not require you to mention anything about your findings (that is, your answers to the questions) in your summary. You are not required to add anything new (such as your opinions, explanations etc.) to your summary. Penality will be given for anything new you added to your summary. I just want to see whether you understand the case study and whether you understand the requirements or not. Therefore, you are required to restate or summarize in your own words (350 words or more) the background description of this case study as well as what you are asked to do about it only. In your summary, you need to cover the information contained in the paragraphs about Leisure Manufacturing, Inc. and the expert grill project as well as what you are asked to do (as a finance consultant) by the questions