Very confused ahout this question. Please see the picture.

Scenario: Webmasters.com has developed a powerful new server that would be used for corporations' Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server The project would require net working capital at the beginning of each year in an amount equal to 10% of the yearts projected sales; for example, NWCO = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of The company's nonvariable costs would be $1 million at Year 1 and would increase with inflation, The server project would have a life of 4 years: j if Che project is underfa ej41 it must be continued for the entire 4 years. Also, the project's returns are expected to be highly Coerejated with returns firm's other assets, The firm believes it could sell 1,000 units per year. ar period, using MACR e The estimated market value of the equipment The equipment would be depreciated over a at the end of the project's 4-year life is $500,000. Webmasters' federal-ij tiLsiaie tax rate is 40% and its overall weighted average cost of capital is 10%. 1. Define 'fineremental cash flow." cu atlng project cash flow? o Should you subtract interest expense or dividends w e o Suppose the firm had spent $100,000 last year to re ablll ate the production line site. Should this be included in the analysis? Explain. o Now assume that the plant space could be leased out o nother firm at $25,000 a year. Should this be included in the analysis? If so, how? o Finally, assume that the new product line IS expected to decrease sales of the firm's other lines by$50,000 per year. Should this be considered in the analysis? If so, how? -2=Construct annual incremental operating cash flow 'stalements. 83 Estimate the required net operating working ca ital for each year, and the cash flow due to investments in net operating working capital. 4. Calculate the after-tax salvage cashflow. 5. Calculate the net cash flows foreachyear. based o these cash flows, what are the project's NPV, IRR, MIRR, and payback? Do these indicators suggest that the project should be undertaken? 6. What does the term "risk" mean in the context of Capill bdgeting, to what extent can risk be quantified, and when risk is quantified, is the quantification based primarily o statistical analysis of historical data or on subjective, judgmental estimates? o What are the three types of risk that are relevant m apal budgeting? How is each of these risk types measured, and h d elate to one another? o How is each type of risk used in the capital budgeting ro ess? 7. What is sensitivity analysis? o Perform sensitivity analysis on the unit sales, salvage value? and cost of capital for the project. Assume that each of these variables can vary from its base case, or expected, value by plus and minus 10, 20, and 30 percent. Include a sensitivity diagram, and discuss the results,