Sugar Land Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by a MBA student. The production line would be set up in unused space (Market Value Zero) in Sugar Land main plant. Total cost of the machine is $240,000. The machinery has an economic life of 4 years, and MACRS will be used for depreciation. The machine will have a salvage value of $25,000 after 4 years. The new line will generate Sales of 1,250 units per year for 4 years and the variable cost per unit is $100 in the first year. Each unit can be sold for $200 in the first year. The sales price and variable cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firms net working capital would have to increase by $30,000 at time zero (No additional NWC is needed in years 2, 3 and the NWC will be recouped at the end of year 4). The firms tax rate is 40% and its weighted average cost of capital is 10%.

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What are the annual depreciation expenses for years 1 through 4? (10 P0ints)

	Year 1	Year 2	Year 3	Year4
Depreciation

Calculate the annual sales revenues and variable costs (Dont include depreciation in your cost estimation), for years 1 through 4. (15 points)

	Year 1	Year 2	Year 3	Year4
$ Sales
$ Variable costs

Estimate annual (Year 1 through 4) operating cash flows (25 Points)

	Year 1	Year 2	Year 3	Year4
Sales
OCF

Estimate the after tax salvage cash flow (5 points)

Estimate the net cash flow of this project (25 points)

	Year zero	Year 1	Year 2	Year 3	Year4
CF of the project

Estimate the NPV, IRR, MIRR, and profitability Index of the project. (20 points)

NPV =
IRR =
MIRR =
PI