Answer with a detailed solution number 6

Consider the following investment project with a useful life of 8 years. The marketing department estimates that 10,000 units of the proposed product can be sold per year. a. Verify that the project is economically attractive (before-tax) at a 12% MARR with a useful life of 8 years. Answer: pw = $58, 153.50, so yes, economically attractive since PW > 0. b. Determine whether this decision is more sensitive to a change in the estimated number of units sold per year or to a change in the initial investment. Answer: More sensitive to a change in the # of units. Can only take a 19.5% decrease in the # of units before decision changes; can take a 23.3% increase in the initial investment before the decision changes. Consider the following Information associated with a 2 year old asset (the "defender") with an original cost basis of $4, 400: a. Find the after tax cash flows (ATCFs) of this defender using an after-tax MARR of 12% and an effective tax rate of 40% Answer: Year 0 - $2, 345; Year 1 - $5662, year 2 - $5797, year 3 $-5899 + $203 b. If the best challenger has a known after-tax PW over 3 years of $-14,000 should the defender be replaced? Explain. Answer: PW of defender ATCFs is $-16, 076 so yes replace