Morgan Corp., a corporation that taxes its income at 34%, is considering  invest in a new project that will last 5 years. The corporation is analyzing and will have to  choose between one of the following two options:

Project duration: 5 years

Option A
* Project cost (plant and equipment): $ 14,800,000
* Handling and installation costs: $ 200,000
* Projected Sales (in units): Year 1 - 70,000 (units)
Year 2 - 120,000
Year 3 - 120,000
Year 4 - 80,000
Year 5 - 70,000
* Selling price per unit: $ 300 per unit from year 1 to 4, $ 250 per unit in year 5
* Costs (expenses):
-Variables per unit - $ 140 per unit
-Annual fixed - $ 700,000
* Depreciation method: Straight line with a useful life of 5 years. Assume the project is worthless  residual (salvage value).
* Under this option an increase of $ 50,000 in current assets and an increase of $ 25,000 is projected  

in current liabilities (debts). (Net working capital)

Option B
* Cost of the new business line: $ 6,900,000
* New equipment installation and handling costs: $ 100,000
* Projected sales (in units): Year 1 - 80,000 (units)
Year 2 - 100,000
Year 3 - 120,000
Year 4 - 70,000
Year 5 - 70,000
* Selling price per unit: $ 250 per unit from year 1 to 4, $ 200 per unit in year 5
* Costs (expenses):
-Variables per unit - $ 130 per unit
-Annual fixed - $ 300,000
* Depreciation method: Straight line with a useful life of 5 years. Assume the project is worthless  residual (salvage value).
* Under this option, an increase of $ 40,000 in current assets and an increase of $ 20,000 is projected  in current liabilities (debts).

Additional Information:

A. There will be no sale of existing assets at the beginning of the project, therefore Morgan Corp. will not you will experience capital gains on this transaction.

B. For neither of the two options presented is a terminal cash flow projected (terminal  cash flow)

Help Morgan Corp. by answering the following questions:
1. Based on the information presented, calculate the initial investment (initial outlay) for each of the options before your consideration.

2. Based on the information presented, calculate the operating cash flows.  flows) for each of the options.

3. Assume that you are a consultant for Morgan Corp. Provide a recommendation on which of the two options presented must select the corporation based on the information obtained in the previous sections (questions 1 and 2). Recommendation: Use Net Present Value (NPV) to make your decision.