The contract is to supply 350,000 disposable gloves at a price of RM15 per piece for a period of three years. The equipment needed to produce the gloves would cost RM1,500,000 plus another RM400,000 for shipping and installation. Current assets needed would increase by RM300,000, and current liabilities would rise by RM210,000. Variable cost would be 50% of sales, fixed cost would be RM600,000 per year, and fixed assets would be depreciated using three-year MACRS (Depreciation rate: 45%,33%15%,7%). When the contract expires after three years, the equipment should have a market value of RM140,000.ABC company's tax rate is 40%, and it uses a 10% WACC for average-risk projects.

1. Find the required Year 0 investment and the projects annual net cash flows. Then calculate the projects NPV, IRR, MIRR, and payback. Assume at this point that the project is of average risk. (Construct a spreadsheet that calculates the cash flows, NPV, IRR, payback, and MIRR).
2. Suppose you now learn that R&D costs for the new product were $30,000 and that those costs were incurred and expensed for tax purposes last year. How would this affect your estimate of NPV and the other profitability measures?
3. If the new project would reduce cash flows from ABCs other projects and if the new project would be housed in an empty building that ABC owns and could sell, how would those factors affect the projects NPV?
4. The CEO expressed concern that some of the base-case inputs might be too optimistic or too pessimistic. He wants to know how the NPV would be affected if these six variables were 20% better or 20% worse than the base-case level: unit sales, sales price, variable costs, fixed costs, WACC, and equipment cost. Hold other things constant when you consider each variable and construct a sensitivity graph to illustrate your results.