The Cold and Sweet (C&S) company manufactures ice-cream bars. The company is considering the purchase of a new machine. The details are as follows (10 points): The cost of the machine is $900,000 The machine will be depreciated over 10 years to zero book value. The company intends to use the machine for only 5 years, and will sell the machine at $600,000 (at the end of year 5) The company would need to pay a marketing consultant $50,000 in year 1 for advice on the most effective adverting plan. The company expects revenue of $520,000 per year. The company expects additional annual costs of $220,000 per year. Tax rate is 30% Cost of capital is 14% a. Assume cash flows occur at the end of the year. What is the NPV of the project [3 points] b. Repeat the analysis now assuming that cash flows occur mid-year [1 point]. c. The Cold and Sweet Company is considering another machines that offers an NPV of $100,000, but only has a 3 year life. However, you can repurchase this machine as many times as youd like. Compute the EAC of this investment and the original project. Which project would you recommend investing in, why? [3 points]. d. Suppose the CPI data for years 0 to 5 are: 68, 71, 73, 77, 79, 82. Based on this CPI data, compute the Nominal and Real IRR. [2 points]. e. If the companys real cost of capital is 16% should it take the project? Why or why not?

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