Tomas Co. wants to add a production line. To do this, the company must spend $200,000 to expand its current building and purchase $1 million in new equipment. The new production line is expected to produce 100,000 units per year of a new product, which has a projected sales price of $7.75 per unit and a variable cost of $3.90 per unit. Introducing the new product is expected to cause sales of existing products to decrease by $89,000 per year and existing costs to decline by $49,000 per year. Fixed costs of the new line will be $142,000 annually. The company expects net working capital to increase by $1,800,000 when the new line is added, and then decrease by that amount when the project ends in five years. Tomas also expects to sell the equipment and building space at the end of the project in five years to net $320,990.36 after taxes. The company has a 34 percent marginal tax rate. Tomas cost of capital is 11%. Depreciation would be as follows,

Year 1: $206,349.20

Year 2: $326,349.20

Year 3: $198,349.20

Year 4: $121,549.20

Year 5: $121,549.20

Instructions: 1) Use an Excel spreadsheet to evaluate the Tomas Company proposal. 2) Conduct a sensitivity analysis that focuses on the cost of capital. For a best-case scenario, decrease the cost of capital by three percentage points. For a worst-case scenario, increase the cost of capital by three percentage points. 3) You must provide one spreadsheet for each of the three situationsthe base case estimate, the best case, and the worst case. 4) What do you recommend? Explain. You may type your recommendation and explanation on the Excel sheet. Make use of Excel Formulas. NOTE: THIS INCLUDES USING CELL REFERENCES rather than typing in numbers.