Reliable Electric is considering a proposal to manufacture a new type of industrial electric motor which would replace most of its existing product line. A research breakthrough has given Reliable a two-year lead on its competitors. The project proposal is summarized in Table 6.7.

a. Read the notes to the table carefully. Which entries make sense? Which do not? Why or why not?

b. What additional information would you need to construct a version of Table 6.7 that makes sense?

c. Construct such a table and recalculate NPV. Make additional assumptions asnecessary.

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2006-2013 2004 2005 2003 1. Capital expenditure 2. Research and development 3. Working capital 4. Revenue 5. Operating costs 6. Overhead 7. Depreciation 8. Interest 9. Income 10. Tax 11. Net cash flow -10,400 -2,000 -4,000 8,000 16,000 40,000 -20,000 -4,000 -4,000 -800 -1,040 -8,000 -1,040 -2,160 -2,160 -2,160 3,200 420 2,780 -2,000 4,480 8,320 -16,400 12. Net present value +13,932