Font Paragraph Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves' main plant. The machinery would incur $10,000 in shipping charges, and it would cost an additional $28,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of 15% of initial outlay after 4 years of use. The new line would generate incremental unit sales per year for 4 years at an incremental cost of $108 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm's net working capital would have to increase by an amount equal to 12% of sales revenues. The firm's tax rate is 35%, and its overall weighted average cost of capital is 10%. Group 1 Group 2 Group 3 Group 4 Group 5 Invoice price 225.000 250.000 300.000 380.000 410.000 Unit sales 1.300 1.500 2.000 2,300 2,500 Poor acceptance 950 1,000 1,500 2,000 2.000 Strong acceptance 1,700 2,000 2,500 2,700 3,000 i. Perform a sensitivity analysis on the unit sales, salvage value, and cost of capital for the project. Assume each of these variables can vary from its base-case, or expected, value by +/-10%, +/-20%, and +/-30%. a. Include a sensitivity diagram, and discuss the results. Font Paragraph Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves' main plant. The machinery would incur $10,000 in shipping charges, and it would cost an additional $28,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of 15% of initial outlay after 4 years of use. The new line would generate incremental unit sales per year for 4 years at an incremental cost of $108 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm's net working capital would have to increase by an amount equal to 12% of sales revenues. The firm's tax rate is 35%, and its overall weighted average cost of capital is 10%. Group 1 Group 2 Group 3 Group 4 Group 5 Invoice price 225.000 250.000 300.000 380.000 410.000 Unit sales 1.300 1.500 2.000 2,300 2,500 Poor acceptance 950 1,000 1,500 2,000 2.000 Strong acceptance 1,700 2,000 2,500 2,700 3,000 i. Perform a sensitivity analysis on the unit sales, salvage value, and cost of capital for the project. Assume each of these variables can vary from its base-case, or expected, value by +/-10%, +/-20%, and +/-30%. a. Include a sensitivity diagram, and discuss the results