So Matt and Chris began collecting the necessary information. They knew that to have a comprehensive feasibility study they would have to include the following: ro forma statements showing expected annual revenues, variable costs, fixed costs, and net cash flows over the economic life of the project with appropriate supporting documentation. PC) s in 2. Break-even analysis. 3. Sensitivity of the cash flows to alternative scenarios of sales growth and profit margins the eful, sign ote Based on the data provided by the marketing department, they prepared Table 1, showing the expected unit sales of the Lawn Robot over its part was took with ome vet new 10-year economic life and the expected selling price per unit. Note that the price of $1,000 per unit was estimated to gradually drop to $900 per unit over the 10-year period reflecting competitive pressures. Depreciation for this project was based on the seven-year MACRS rates as shown in Table 2. The cost of equipment, including shipping, handling, and instal lation, was estimated at $20 million. It was estimated that after 10 years the equipment and tools could be sold for $4 million The manufacturing would be done in an unused plant of the firm. Similar plant locations could be leased for S10,000 per month. Fixed costs were estimated to be $1,500,000 per year while variable production costs per unit were expected to be $400. To get the project underway, additional vory of $500,000 would be required. The company would increase its n of udy nvent accounts payab Matt and Chris le by $600,000 and its accounts receivable by $1,000,000. s estimated that each year thereafter, the net working capital ca the firm would amount to 5% of sales. The weighted average cost of capital was calculated to be 14%. Interest expenses on debt raised to fund project were estimated to be $400,000 per year. The company's tax rate der- the was expected to remain constant at 34%. enue