The following information is available about an investmentopportunity. Investment will occur at time 0 and sales willcommence at time 1.

Initial Cost $28 million

Unit Sales 400,000

Selling price per unit, this year $60.00

Variable cost per unit, this year $42.00

Life expectancy 8 years

Salvage value $0

Depreciation Straight-line

Tax rate 37%

Nominal discount rate 10.0%

Real discount rate 10.0%

Inflation rate 0.0%

a. Prepare a spreadsheet to estimate the project's annual after-taxcash flows.

b. Calculate the investment's internal rate of return and itsNPV.

c. How do your answers to questions (a) and (b) change when youassume a uniform inflation rate of 8 percent a year over the next10 =years? (Use the following equation to calculate the nominaldiscount rate: i (small) n = (1+i (small) r)(1+p)-1, where i(small) r is the real discount rate, and p is expected.)

d. How do you explain the fact that inflation causes the internalrate of return to increase and the net present value todecrease?

e. Does inflation make this investment more attractive or lessattractive? Why?