(Postinvestment audit) Ten years ago, based on a before-tax NPV analysis, Mid¬ western Industrial decided to add a new product line. The data used in the analysis were as follows:

As the product line was discontinued this year, corporate managers decided to conduct a postinvestment audit to assess the accuracy of their planning pro-
cess. Accordingly, the actual cash flows generated from the product line were estimated to be as follows:

a. Determine the projected NPV on the product line investment.

b. Determine the NPV of the project based on the postinvestment audit.

c. Identify the factors that are most responsible for the differences between the projected NPV and the postinvestment audit NPV.

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Discount rate Life of product line Annual sales increase: 12% 10 years $250,000 Years 1-4 Years 5-8 Years 9-10 Annual fixed cash costs Contribution margin ratio Cost of production equipment Investment in working capital Salvage value 350,000 200,000 $ 40,000 40% $250,000 20,000 0