$12-21$

NEW PROJECT ANALYSIS You must analyze a potential new product$$a caulking compound that Cory Materials$$ R&D people developed for use in the residential construction industry. Cory$$s marketing manager thinks the company can sell $115,000$ tubes per year at a price of $$3\mathrm{.}25$ each for $3$ years, after which the product will be obsolete. The purchase price of the required equipment, including shipping and installation costs, is $$175,000,$ and the equipment is eligible for $100\%$ bonus depreciation at the time of purchase. Current assets $($receivables and inventories$)$ would increase by $$35,000,$ while current liabilities $($accounts payable and accruals$)$ would rise by $$15,000.$ Variable cost per unit is $$1\mathrm{.}95,$ and fixed costs would be $$70,000$ per year. When production ceases after $3$ years, the equipment should have a market value of $$15,000.$ Cory$$s tax rate is $25\%,$ and it uses a $10\%$ WACC for average$-$risk projects.

Use Excel for solving.

Find the required Year $0$ investment outlay after bonus depreciation is considered 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.