For Questions $46,$ use the information provided below concerning Warrior$-$Ade.

Sports Science International is considering launching a new sports drink Warrior$-$Ade. The estimated project life is three years due to the fierce competition in the sports drink market. The project requires an upfront investment of $$460,000$ for new equipment. The salvage value of the new equipment is $$40,000$ at the end of the third year. The company uses the straight$-$line depreciation. Additionally, the company has estimated the following information:

$$ The annual demand for the new sports drink is estimated to be $300,000$ bottles, $200,000$ bottles, and $100,000$ bottles, respectively, for the three years of the product life.

$$ The unit price of the new sports drink is $$3\mathrm{.}0$ per bottle.

$$ The cost of production inputs $($water and additives$)$ is $$1\mathrm{.}8$ per bottle.

$$ The company needs to maintain working capital to support production and sales. The working capital balance requirements are $$50,000,$ $$100,000,$ and $$100,000,$ respectively, at the beginning of year $1,$ at the end of year $1,$ and at the end of year $2.$ The working capital balance will then be recovered at the end of year $3.$

$$ The company expects that the new equipment invested in will be sold at a price of $$140,000$ at the end of year $3.$

$$ The company faces a marginal tax rate of $30\%.$ Assume that the company$$s EBIT generated from other divisions is greater than $$300,000$ each year.

Question $4[5$ marks$]$

Using the information provided above concerning Warrior$-$Ade, calculate the following two items:

i$)$ changes in working capital requirements for each year $($Lecture notes pp$\mathrm{.}36-38)$; and

ii$)$ the after$-$tax cash flow from the liquidation at the end of the project life $($pp$\mathrm{.}48,51).$

Answer $($show the steps$/$calculation toward your results$)$:

$$

Question $5[5$ marks$]$

Using the information concerning Warrior$-$Ade, determine EBIT and tax for each year to complete the worksheet below. $($Lecture notes pp$\mathrm{.}29-32,36-37)$

Answer $($complete the worksheet below$)$:

Worksheet for unlevered income:

Year $0123$

Revenues $-$

$-$CoGS

$-$Depreciation

EBIT

$-$Tax $(=$ EBIT$*$T$)$

Unlevered income $=$ EBIT$(1$ T$)$

Question $6[5$ marks$]$

Using the information concerning Warrior$-$Ade, determine unlevered cash flows for each year $($complete the worksheet below$)$ and calculate the NPV of the project. Assume that the cost of capital for the project is $10\%.($Lecture notes pp$\mathrm{.}38-42)$

Answer $($complete the worksheet below and calculate the NPV$)$:

Worksheet for unlevered cash flows:

Year $0123$

Unlevered income $=$ EBIT$(1$ T$)$

Depreciation add back

Capex

Liquidation cash flow, aftertax

Working capital change

Unlevered Cash Flows