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Show work and no excel please! A pharmaceutical company is evaluating the production of a new vaccine. It will evaluate the project by discounting the
Show work and no excel please!
A pharmaceutical company is evaluating the production of a new vaccine. It will evaluate the project by discounting the expected cash flows using its WACC. The following information is known about the project: 6 months ago, the firm spent $1,250,000 on research, development and testing in order to confirm the safety and efficacy of the vaccine. The project requires the purchase of new equipment (in year O) for $6,000,000. The new equipment has a 6-year lifespan and will be fully depreciated under the straight-line method with zero salvage value. The project will generate sales of $5,750,000 per year and expenses of $2,500,000 per year for years 1-4 after which the firm will no longer be producing the vaccine. In year 1, the firm must increase its inventory by $1,750,000. It will maintain this level of inventory until the end of year 4. The project will require the firm to use a warehouse it owns (until the end of year 4), that it would otherwise be renting out for $240,000 per year. The equipment purchased for the project will be sold off at the end of year 5 for $2,000,000 The firm's marginal tax rate is 35%. 1. Compute the incremental cash flows associated with the project for the following years: a. Year o b. Year 1 C. Year 2-4 d. Year 5Step by Step Solution
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