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Suppose the VP of Baldwin Company is looking to evaluate a new project to produce bowling balls. Here are the relevant details: The cost of

Suppose the VP of Baldwin Company is looking to evaluate a new project to produce bowling balls. Here are the relevant details:
The cost of the marketing test is $250,000.
The new product will be manufactured in a building owned by the company. If not
manufactured, the building would be sold for $150,000.The cost of the machine is $100,000 and is expected to be used for 5 years, after which
it is expected to be sold for $30,000.The price of a unit of production is $20, and it is expected to grow at a rate of 2% per year. The tax rate is 34%, and the production cost is $10 per unit, which is expected to grow
at a rate of 10% per year. Depreciation is calculated using the Modified Accelerated Cost Recovery System. Net working capital at the time of the investment is $10,000, and in subsequent years, it is expected to be 10% of the total expected sales.
The marketing test concluded that the expected production levels for the next 5 years are: E(Quantity Demanded)={5,000; 8,000; 12,000; 10,000; 6,000}
Questions:
A. What is the NPV of the project? Should Baldwin undertake the project?
B. Represent of a Y-X axes the NPV profile of the project. What is the maximum level of the opportunity cost of capital for the project that guarantees a positive NPV?
C. Perform Sensitivity Analysis on this project focusing on the 4 inputs that you consider most important for a manager to be aware of. Report the results in a Table and a Tornado Chart.
D. Perform Scenario Analysis on the project with uncertainty on the same inputs. Please clarify the assumptions you are making about the comovement between inputs and provide a justification for these assumptions.
E. The manager is scared that a recession may arrive in the next 2 years. Perform a NPV BEA analysis. Should be the manager by a sudden drop in the sales?

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