Triple J Sports projects unit sales for a new athletic training device. Production of the devices will require

$$6,500,000$ in net working capital to start and additional net working capital investments each year equal to $15$

percent of the projected sales increase for the following year. Total fixed costs are $$5,900,000$ per year, variable

production costs are $$525$ per unit, and the unit price is $$695$ each. The equipment needed to begin production has

an installed cost of $$22,500,000.$ Because the devices are intended for professional athletes, this equipment is

considered industrial machinery and thus qualifies as seven$-$year MACRS property. In five years, this equipment

can be sold for about $10$ percent of its acquisition cost. The company is in the $35$ percent marginal tax bracket and

has a required return on all its projects of $18$ percent. The unit sales information and MACRS depreciation schedule

follow:

REQUIRMENTS:

$1.$ Prepare the financial statements based on the information provided.

$2.$ Based on the project estimates, what is the NPV of the project?

$3.$ What is the IRR?

$4.$ What do these results indicate in terms of whether the project is worth consideration or not? Based strictly on

the calculations, should the project be accepted or rejected?

$5.$ What subjective $($social$,$ economic, governance, etc.$)$ elements might influence any decisions?

$6.$ Assume the COO requests a review of the analysis and maintains that the numbers presented are correct, but he

wants you to consider that $$750,000$ has been invested on initial research and development for this project which he notes is not included in your calculations. He suggests that you recalculate the values as this might influence your decision. What should be your response? Be specific.

Year Unit Sales

$198,200$

$2101,800$

$3111,900$

$498,800$

$594,500$

Year Rate

$114\mathrm{.}29\%$

$224\mathrm{.}49\%$

$317\mathrm{.}49\%$

$412\mathrm{.}49\%$

$58\mathrm{.}93\%$

$68\mathrm{.}92\%$

$78\mathrm{.}93\%$

$84\mathrm{.}46\%$

MACRS $7-$year property $($ex: office furniture and fixtures such as desks,

fax machines, lamps, files, chairs$).$

MACRS DEPRECIATION BY CLASS OF PROPERTY