You must analyze a potential new product - a caulking compond that Cory Materials' R&D people developed for use in the residential construction industry. Cory's marketing manager thinks the company can sell the 115,000 tubes per year at a price of $3.25 each for 3 years, after which the product will be obsolete. The required equipment would cost $150,000, plus another $25,000 for shipping and installation. Current assets (receivables and inventories) would increase by $35,000, while current liabilities (accounts payable and accruals) would rise by $15,000. Variable cost per unit is $1.95, fixed costs (exclusive and depreciation) would be $70,000 per year, and fixed assets would be depreciated under MACRS with a 3-year life. (Refer to Appendix 12A for MACRS depreciation rates.) When production ceases after 3 years, the equipment should have a market value of $15,000. Cory's tax rate is 40%, and it uses 10% WACC for average-risk projects.

a. Find the required Year 0 investment and the project's annual cash flows. Then calculate the project's NPV, IRR, MIRR, and payback. ASsume at this point that the project is of average risk.

b. Suppose you now learn that R&D costs for the new product were $30,000 and that those costs were incurred and expensed for tax purposes last year. How would this affect your estimate of NPV and the other profitability measures?

c. If the new project would reduce cash flows from Cory's other projects and if the new project would be hosues in an empty building that Cory owns and could sell, how would those factors affect the project's NPV?

(Please show work for part A)