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The GIANT Company investigated the marketing potential of dark colored plane wings. people at GIANT complained about the cost of the test marketing, which was

The GIANT Company investigated the marketing potential of dark colored plane wings. people at GIANT complained about the cost of the test marketing, which was $250,000.In any case, the GIANT company is now considering investing in a machine to produce dark wings. The dark wings would be manufactured in a building owned by the firm and located near NEWORLEANS This building, which is vacant, and the land can be sold for $1,500,000 after taxes .Working with his staff, Meadows is preparing an analysis of the proposed new product. He summarized his assumptions as follows: the cost of the wing machine is $1,000,000 and it is expected to last seven years (use the MACRS depreciation). At the end of seven years, the machine will be sold at a price estimated to be $300,000. Production by year during the sevenyear life of the machine is expected to be as follows: 500 units, 800 units, 1200 units, 100 units, 600units.,200units ,50 units The price of wing will be $2000. Production cost will be $1000 dollars per unit. The appropriate incremental corporate tax rate is 35%.Management and determines that an initial investment (at year 0) in net working capital of$10,000 is required. Subsequently, net working capital at the beginning of each year will be equal to10% of sales for that year. In the final year of the project, net working capital would decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the projects life .If discount rate IS 13.5%

USING THE EXCEL CALCULATE:

1.THE INITIAL INVESTMENT

2.THE OPERATING CASH FLOW

3.THE TERMINAL VALUE

4.THE NPV

5.Profitability index

6.Pay pack period

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