Below are key estimates and assumptions associated with the project:

Project life (in years) 4 Initial cost of equipment $ 2,275,000 Initial shipping charges for equipment $10,000 Initial cost of installation of equipment $15,000 Initial Increase in working capital $140,000 Gross sales from the new product line in year 1 $ 1,200,000 Gross sales increase after year 1 (per year) 5% Operating costs (as a% of gross sales) 30% Market research before the start of the project $ 60,000 Weighted average cost of capital 12% Marginal corporate income tax rate 35%

It is estimated that the new product will cannibalize gross sales by an amount of $75,000 per year. The total net working capital will be 10% of gross sales for each year of project life. The new equipment is fully depreciated on a straight-line basis over the life of the project. The new equipment is estimated to have a salvage value of $150,000 in 4 years.

Assignment 1. Prepare the cash flow forecast for this project in Excel. Your solution must use the cash flow format used in class and show all the components of the cash flows clearly. (83 points allocated across the components of the solution) 2. Using the cash flow forecast, calculate the NPV, IRR, Profitability Index, and Payback Period for the project. Your solution must show all calculations clearly. (3 points each for 12 points) 3. Based on the above analysis, would you recommend the new product line extension? Justify your recommendation with a one-paragraph narrative. You must clearly state the justification. (5 points)