I. Workout Problem$-$ Brunswick Company estimates it can save $$3,700,000$

a year in cash$-$operating costs for the next four years by replacing old equipment currently in use

with new, more efficient equipment. Capital expenditures for the purchase of the new equipment

will be $$8,500,000.$ Old equipment must be cleared from the site in order to install the of equipment.

which has a book value of $$60,000.$ Installation will require a shutdown, and therefore,

inventory will be increased by $$200,000$ to cover sales during installation. This inventory will be

has a $20\%$ cost of capital and the income tax rate is $40\%.$ The equipment will generate cash

flows for four years and the relevant MACRS depreciation schedule is as follows: $0\mathrm{.}333,0\mathrm{.}445.$

$0\mathrm{.}148,$ and $0\mathrm{.}074.$ The overall company is eaming positive profits.

a$.$ Prepare a detailed cash$-$flow profile and compute the net present value $($NPV$)$ of

the project. Indicate whether you would accept or reject the project.

b$.$ On a discounted basis, what is the net dollar impact on NPV of the working capital

effects?

c$.$ What sensitivities would you perform on the NPV analysis to help with your

decision on whether to accept or reject the project?