FALL Industries is thinking about a plan to make high-end ropes that mountain hikers use for support. The company paid a consultant $25,000 to find out if the idea would work. The project needs to use a building that the company bought three years ago for $3 million and now rents out for $123,000 a year. Rental prices aren't likely to change in the future. Along with using the warehouse, the project needs an initial investment of $1.3 million for tools and other equipment. For tax reasons, this investment can be fully written off in a straight line over the next 10 years. The FALL industry, on the other hand, plans to end the project in eight years and sell the tools and equipment for $496,000. Lastly, the project needs an initial investment in net working capital equal to 10% of what is expected to be sold in the first year. After that, the net working capital stays at 10% of the sales that are expected over the next few years. In the first year, sales of protein bars are projected to be $4.5 million and stay the same for the next eight years. The total cost of making and running a business (not including depreciation) is 80% of sales, and earnings are taxed at 30%.

a.Should FALL go ahead with the project if the cost of capital is 14.5%?

b.can you explain why you included or left out certain costs in part (a) of your investment appraisal?