The Kumar Corpotation, a firm in the $34\%$

marginal taxbracket with a $15\%$ required rate of

return or cost of capital, is considering a new

project. This project involves the introduction of a

new product. The project is expected to last five

years and then, because this is somewhat of a

fad project, to be terminated. Given the following

information, determine on excel sheet the free cash flows

associated with the project, the project$$s NPV$,$

the profitability index, and the internal rate of

return. Apply the appropriate decision criteria.

Cost of new plant and equipment: $ $9,900,000$

$$ Shipping and installation cost: $ $100,000$

$$ Unit Sales: Year Unit sold

$170,000$

$2100,000$

$3140,000$

$470,000$

$560,000$

$$ Sales price per unit: $$280/$ unit in years $1-4,$ $$180/$ unit in year $5$

$$ Variable cost per unit: $$140/$ unit

$$ Annual fixed costs: $ $300,000$

$$ Working Capital Requirement: There will be an initial working capital requirement of

$ $100,000$ just to get production started. Then, for each year $,$ the total investment in

NWC will be equal to $10\%$ of the dollar value of sales for that year. Thus, the

investment in working capital will increase during years $1$ through $3,$ then decrease in

year $4.$ Finally, all working capital is liquidated at the termination of the project at the

end of year $5.$

$$ The Depretiation Method: We used the simplified straight$-$line method over $5$ years.

It is assumed that the plant and equipment will have no salvage value after $5$ years.

Thus annual depreciation is $$10,000,000/$ year for $5$ years.