1. Sophisticated Widgets Inc. is considering an investment project that will require an initial investment of $200,000 in net working capital and have an estimated life of 5 years. The projects incremental sales are expected to be 300,000 units at a price of $15 per unit for the first year. The price per unit is expected to grow at the rate of inflation of 3% per year. The variable costs will represent 65% of annual revenues and the fixed costs will be $800,000 annually. The capital spending associated with the project will cost $1,900,000 and will require an additional $150,000 of shipping and installation expenses. The fixed assets associated with the project will be depreciated using the MACRS 7-year class life. After five years the projects fixed assets can be sold for $350,000. The WACC is 15% and the marginal tax rate is 40%.

1. Calculate the initial investment, annual after-tax cash flows, and the terminal cash flow of this investment project.
2. Determine the payback period, discounted payback period, NPV, PI, IRR, and MIRR of this project. Should this project be accepted?
3. Perform sensitivity analysis using increments of 5% from -15% to 15% for the following uncertain variables: number of units, variable cost as a percentage of sales, investment in net working capital, salvage value, and inflation rate. Create a Scatter chart including all of these variables.
4. Perform a scenario analysis using the percentages of change for the same uncertain variables and the probabilities for each scenario given in the following table:

Scenario Probability	5%	10%	20%	30%	20%	10%	5%
Scenario	#1	#2	#3	#4	#5	#6	#7
number of units	30%	20%	10%	0%	-10%	-20%	-30%
variable cost as a percentage of sales	30%	20%	10%	0%	-10%	-20%	-30%
Net working capital investment	-30%	-20%	-10%	0%	10%	20%	30%
salvage value	30%	20%	10%	0%	-10%	-20%	-30%
inflation rate	-30%	-20%	-10%	0%	10%	20%	30%

MACRS 7-Year depreciation

4.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46%

d.1. Determine the payback period, discounted payback period, NPV, PI, IRR, and MIRR of this project under each scenario.

d.2 .Determine the expected NPV, PI, and IRR, and the corresponding standard deviation, coefficient of variation, and the probability of a negative NPV, a PI equal to 1, and an IRR equal to the firms required return WACC.