Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in Years determining whether the project is feasible. All you work should be in a spreadsheet file. In addition to your capital budget analysis, prepare a risk analysis for scenario and sensitivity.

In your opinion is this an investment to approve. A simple Yes or No will be a sufficient answer.

Project Inputs:

WACC Determine the cost of capital for your discounted cash flow.

Debt to Assets is 70%

Interest rate on the debt is 6.50%

Current Risk-Free Rate is 1.65%

Current Market Premium Rate is 8.50%

The firms beta is 1.30

Project Investment Outlay, Year 0 - $700,000

Project Investment Life 7 years

Project Depreciation - $100,000 / year

Project Salvage Value - $55,000

Working Capital Base of Annual Sales 8%

Expected inflation rate per year, Selling Price Per Unit 2.00%

Expected inflation rate per year, Variable Cost per unit 1.50%

Expected inflation rate per year, Fixed costs per year 1.50%

Project Tax Rate 20%

Units sold per year 40,000

Selling Price per Unit, Year 1 - $45.00

Fixed operating costs per year excluding depreciation - $75,000

Manufacturing costs per unit (variable costs), Year 1 - $35.00

Scenario Analysis:

Units Sold per Year / Probability

Base Case: 40,000 / 55%

Best Case: 48,000 / 20%

Worst Case: 32,000 / 25%

Sensitivity Analysis:

Percentage Changes: +/- 15%, 10%, 5%

Sensitivity Variables (3): Selling Price per unit / Variable cost per unit / Fixed cost