$2.$ Lawton Enterprises is evalua$$ng a project with the following characteris$$cs:

$$ Fixed capital investment is $$2,000,000$

$$ The project has an expected $6-$year life

$$ The ini$$al investment in working capital is $$200,000.$ At the end of each year, working capital

must be increased so that the cumula$$ve investment in net working capital is one$-$sixth the

next year$$s projected sales.

$$ The Fixed capital is depreciated $30$ percent in year $1,35$ percent in year $2,20$ percent in year

$3,10$ percent in year $4,5$ percent in year $5,$ and $0$ percent in year $6.$

$$ Sales are $$1,200,000$ in year $1.$ They grow at a $25$ percent annual rate for next two years, and

then grow at a $10$ percent annual rate for the last three years.

$$ Fixed cash opera$$ng expenses at $$150,000$ for years $1-3$ and $$130,000$ for years $4-6.$

$$ Variable cash opera$$ng expenses are $40$ percent of sales in year $1,39$ percent of sales in year

$2,$ and $38$ percent of sales in years $3-6.$

$$ Lawton$$s marginal tax rate is $30$ percent.

$$ Lawton will sell its fixed capital investments for $$150,000$ when the project terminates and

recapture its cumula$$ve investment in net working capital. Income taxes will be paid on any

gains.

$$ The project$$s required rate of return is $12$ percent.

$$ If taxable income on the project is nega$$ve in any year, the loss will offset gains elsewhere in

the corpora$$on$,$ resul$$ng in a tax savings.

a$.$ Determine if this is a profitable investment using NP$1$ and IRR

b$.$ If the tax rate increases to $40$ percent and the required rate of return increases to $14$

percent, is the project s$$ll profitable?

Can you use this excel sheet with showing formulas? Thank you!!