Solve Part 1 and Part 2 with Complete description.

1. Project valuation (20 points) The company Cheap Car Inc. currently refurbishes 10'000 cars a year. The company expects output levels to remain steady in the future. The company collects old cars for CHF 1'000/car and changes the motor on each car before reselling the cars for CHF 3'000 per unit. Suppose that the only production input is one second-hand motor per car. The company currently sources the motors from an outside supplier at a price of CHF 900 per motor. The plant manager believes that it would be cheaper to collect old motors for free and repair them rather than buy them. Direct in-house reparation costs are estimated to be only CHF 500 per motor. The necessary machinery would cost CHF 250'000 and would be obsolete after 10 years. This investment will be depreciated to CHF 25'000 for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require additional working capital of CHF 30'000, which will be recovered at the end of the 10 years. Expected proceeds from reselling the machinery after 10 years are CHF 50'000. The company pays tax at a rate of 35% and the appropriate cost of capital is 15% (Hint: Analyze the situation as two different projects the company is deciding between; compute the FCF for each project. Consider both projects/cases to be for a 10 year horizon.) a) If Cheap Car Inc. continues to purchase the motors from an outside supplier, what are the free cash-flows and NPV in that case? (6 pts) b) If Cheap Car Inc. decides to repair the motors in-house, what are the free-cash-flows of that project and the NPV in that case? (11 pts)