. . FastCars is debating whether its next car model should be a gas or electric car. Due to factory limitations, FastCars will only be able to introduce one new model in the next five years . Both models would have a five-year lifecycle, before they would need to be completely redesigned. Thus FastCars will evaluate the project with a five-year time horizon The Year Sales COGS model would have the following projected sales and cost of goods sold (in millions): 2 3 4 5 14 10 17 10 5 4 10 7 19 12 The electric model would have the following projected sales and cost of goods sold (in millions) Year 3 4 5 Sales COGS . The appropriate discount rate for both projects is 15%, Questions 25 15 19 10 1. What are the cash flows in each year if FastCars invests in the gas model? 2. What are the cash flows in each year if FastCars invests in the electric model? 3. What is the NPV of investing in each model? 30 15 Initial capital expenditures for retooling the factory will be 10 million dollars for the gas model and 20 million dollars for the electric model. This cost will be depreciated fully using the straight- line depreciation method over five years . A feasibility study was conducted that cost 1 million dollars and has already been paid for The company's tax rate is 25%, and the company can write off any tax losses against profits in other divisions 15 5 4. What is the IRR of investing in each model 5. Which model should FastCars invest in? How did you arrive at this conclusion? 30 12