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a Final Exam Practice Problem Company A is considering a contract to manufacture a new product. The company has spent $10,000 in research to decide whether or not to take this contract. The contract calls for the company to deliver 3,000 units in the first year. 4,000 units in the second year, 2,000 units in the third year, and 1,000 units in the last year. The price is $45 per unit for the first year and expected to increase with inflation. The variable costs of the product will be $20 per unit for the first year and also expected to increase with inflation. Inflation is 3% per year. The fixed costs will be $3,000 for the first year and $2,000 for year 2 to year 4. Selling, general, and administrative expenses are expected to be 20% of sales. Producing this product will require new equipment. The equipment cost $100,000. The shipping and installation costs of the machine ($10,000) will be capitalized and depreciated. The new equipment will be depreciated to $30,000 on a straight-line basis over 4 years. Training costs (Year 0 only) will be $5,000 (cannot be capitalized). At the end of 4 years, this equipment can be sold for $20,000. The net working capital is 10% of next year sales. The tax rate is 30%. Calculate the cash flow and NPV for this project (discount rate is 1296). Should the company accept the project? Year 0 Year 1 Year 2 Year 3 Year 4 Revenues Variable Costs Fixed Costs Expenses Depreciation EBIT Taxes NOPAT Depreciation Cap Ex ANWC -Net CFS