Case 3: United Technologies Project Analysis United Technologies is considering building a new manufacturing plant to produce super energy efficient "Home Climate Control Systems" through its Carrier division. The project would require an initial investment in new production facilities and equipment of $400M in 2016 would fall in the 5-year MACRS depreciation class. United Technologies has already spent $20M designing and developing these new systems and they will need additional net working capital of $50M in 2016. The table following this paragraph contains sales, sale price, variable cost and fixed cost projections over the expected life of the project. The company's marginal tax rate is 40% and this project has a WACC of 9.5%. At the end of 2021, United Technologies will end the project and can sell their production facility and equipment for $85M in addition to liquidating the extra net working capital that was needed for the project. Answer the following questions. 1. What is the initial cash flow for the project? 4/5 BUSFIN 1031: Capital Budgeting Year Expected Unit Sales Average Sales Price/Unit $3,000 Additional Fixed Costs $210,000 2017 2018 2019 100,000 120,000 130,000 $3,000 $3,100 $3,100 $3,100 Average Variable Costs/Unit $1,800 $1,800 $1,900 $1,950 $1,950 $215,000 $220,000 $225,000 $230,000 2020 2021 135,000 130,000 2. What are the annual operating cash flows for the project? 3. What is the project's terminal cash flow? 4. Calculate the NPV, IRR, and MIRR for the project. 5. Should UTC accept this project? Explain why