The Lonestar Corporation is considering a new project. The project involves the introduction of a new product that is expected to have a five-year lifespan, at which time production will be stopped and the plant left idle. The corporation has a 15 percent required rate of return on all investments and is taxed at a 21 percent marginal rate. Table 1 contains the revenue and cost assumptions for the project.

1. Determine the operating cash flows associated with the project by completing Table 2. For this problem, operating cash flows (OCF) are determined by the formula OCF* = EBIT - taxes + depreciation.
2. Determine the project's net present value, profitability index, and internal rate of return.
3. Using the results from the capital budgeting techniques in part (2), explain why you would or would not invest in this project.
4. Create a decision-making spreadsheet that will permit the instructor to change a few of the initial assumptions and immediately see the effects on NPV, PI, and IRR.Hint: Table 1 information, plus other parameters, should comprise the initial assumptions section of your spreadsheet.