You have been asked to give a written analysis and recommendation to the management team of GRIZ, Inc.Your presentation should be professional and concise with a definitive recommendation for the management team to consider.

This project involves a new type of widget.The management team has predicted that the proposed project would result in sales of 6,000 units of the widget per year at a price of $1,000 each.The variable costs are estimated at $400 per unit and the product would have a four-year life.

Fixed costs for the project would run $450,000 per year and there would be an initial investmentof $1,250,000 in manufacturing equipment.The equipment would be depreciated using MACRS over seven years.In year four, the equipment would be worth half of the purchase price.

GRIZ, Inc would invest $1,150,000 in net working capital at the start of the project.After that, net working capital requirements would be 25% of sales.Assume a 21% tax rate.

In prior analysis, the management team has used a minimum 2.5-year payback and 3-year discounted payback when determining the viability of projects.Assume a 9% discount rate.

The MACRS Table is below:

MACRS Percentage

1 -14.29 %

2 - 24.49 %

3 -17.49 %

4- 12.49 %

• Written analysis of the limitations of each method used to evaluate this project. (NPV, IRR, Discounted Payback, Payback Period, Profitability Index
• Written analysis of recommendations based on each method used to evaluate this project (NPV, IRR, Payback Period, Discounted Payback Period, Profitability Index)

2) What are the impacts that real options would have on the decision to accept or reject this project:

• option to defer
• time to build option or "staged investment option"
• option to abandon
• option to alter operating scale
• option to switch
• Growth options
• Multiple interacting options or "rainbow options"

Calculation for project that relates to answering the above questions is here: https://www.mediafire.com/file/bja3y3ikjh75n7w/GRIZ+Inc.xlsx/file