The C Corporation, a firm in the 34% marginal tax bracket with a 15% required rate of return or discount rate, is considering a new project. This project involves the Introduction of a new product. This project is expected to last 5 years and then, because this is somewhat of a fad product, it will be terminated. Given the following Information, determine the net cash flows associated with the project, the project's net present value and the internal rate of return. Apply the appropriate decision

criteria.

Cost of new plant and equipment

Shipping and installation costs

Unit sales:

Year

1

2

3

4

5

Units Sold

1,000,000

1,800,000

S

1,800,000

$

1,200,000

S

700,000

Sales price per unit:

Variable cost per unit

Annual fixed costs:

$

198,000,000

2,000,000

na

800

per unit in years 1-4

600 per unit in year 5

400 per unit

10,000,000

Working capital requirements: There will be an initial working capital requirement of $2,000,000 just to get production started. For each year, the total investment in net working capital will equal 10% of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. The depreciation method: Use the simplified straight. line method over 5 years. It is assumed that the plant and equipment will have no salvage value after 5 years.

1. Calculate the Net Cash Flows associated with the project

2. NPV at 15%

The C Corporation, a firm in the 34\% enarginal tax bracket with a 15* required rate of return or discount rate, is corsidering a new progect. This proyect involves the introduction of a new preduct. This project is expected to last 5 years and then, because this is somentat of a fad product, it will be terminated. Given the following information, determine the net cash flows associated with the project, the project's net present value and the internal rate of return. Apply the approprate decision criferis. Cost of new plant and equipinent Shippingand installation costs Unit salos: Veriable cost per unit per unit in years 1-4 per unit in year 5 Annual fined costs: Workey capial requireenents: there will be an initial working capital requirement of 52,000,000 juat to get production started. For each year, the tatal ifvestrient in fet working capital will equal 10% of the dollar value of cales for that year. Thus, the investment in working capital will increase during years 1 through 3 , then decrease in year 4. Finally, alf worlang capital is fiquidated at the termination of the project at the end of year 5 . The depreciation method: Use the uinglified straight. line method over 5 years, it is assumed that the plant and equipment will have no salvage value after 5 years