The CEPE "Slope Master RCSM$"$ will have the range of features commonly found in the lower$-$end Chinese

models. By sourcing existing subcomponents, but building the heavier main chassis themselves, CEPE

managers expect to be able to undercut the small existing importers. The firm's managers expect the

production of the mower to be viable for just five years due to their past experience with similar products.

CEPE's managers expect either the existing Chinese manufacturers to develop their own U$.$S$.$ based

distributorships or for existing U$.$S$.$ retail chains $($ex$.$ Tractor Supply$)$ to begin importing the Chinese

manufactured models at a larger, more efficient scale. At that point, CEPE forecasts that it would no

longer be competitive in this niche market. The following table contains estimates of key inputs for each

year of the project.

Fixed assets for the project $($a Primapress punch press and a RMT Kyson fiber laser cutting machine$)$ have

a sales tax inclusive cost of $$435,000.$ Shipping for the fixed assets will be $$12,500.$ Installation of the new

machinery will run $$7,500.$ The fixed assets associated with this project have a $5-$year MACRS class life. It

is expected that the fixed assets will be sold at the end of the project for $$47,500.$ The variable cost per

unit will be $$1,575$ during the first year of the project and then increase $3\%$ per year in each of the

subsequent years.

Selling and Administrative expense for the project is independent of the level of sales and is estimated at

$$425,000$ for the first year of the project. However, S&A Expense is expected to rise with overall inflation

at of rate of $2\%$ per year for all subsequent years of the project. Net Working Capital requirements for

the project at the start of the project are $$125,000($time zero$)$ and then will be $10\%$ of dollar sales in each

period of the project with the entire final year's balance of NWC being recaptured at the very end of the

project.

If the firm has a WACC of $11\%$ and a tax rate of $21\%,$ should the project be undertaken? Prepare a

spreadsheet similar to the examples discussed in the lectures and in the textbook. Calculate the Cutting

Edge Power Equipment project's NPV$,$ IRR, and Payback.