Tronox Inc., is considering an investment in a higher capacity

chlorinator in its titanium dioxide pigment plant in Savannah, GA$.$ To

resist the highly corrosive chlorine, the chlorinator is constructed of a

specialized nickel$-$based steel alloy. The cost of the chlorinator is $$92$

million. In addition, other equipment must be repositioned to make room

for the larger chlorinator. Expenditures to install the chlorinator and

reposition other equipment will total $$3$ million. Because of the higher

levels of production that are enabled, additional inventories must be

carried. Thus, net working capital additions of $$3$ million, $$2$ million,

and $$1$ million will be required in Years $0,1,$ and $2,$ respectively. At the

end of the $10-$year life of the chlorinator the $$6$ million of working

capital will be available for other uses in the company. The chlorinator

currently in use cost $$41$ million in total and has been fully depreciated.

A scrap metal dealer will pay $$1$ million for the old equipment.

Because of the higher level of production enabled by the new

chlorinator, incremental revenues are expected to be $$30$ million in year

$1,$ and will grow by $3\%$ per year. Incremental expenses, excluding

depreciation, will be $$2$ million in year $1,$ but with continual process

improvements they will decrease by $1\%$ per year. A MACRS $7-$year

recovery period is used for depreciation. It is anticipated that new

chlorinator can be sold at the end of its useful life for $$3$ million to a

weaker competitor

Tronox believes this project to be of similar risk to its overall portfolio

of assets. The firm$$s weighted average cost of capital $($WACC$)$ is $14\%.$

The firm$$s marginal tax rate is $28\%.$ The typical reinvestment rate for

Tronox projects is $17\%.$

Develop a spreadsheet showing all your work in determining whether or

not Tronox should make this investment. Show results for NPV$,$ IRR, PI$,$

and Modified IRR. Indicate whether or not you would accept this

project. Please submit your Excel Spreadsheet via Blackboard.