Question $11(20$ Points$)$ Integrated Operating Cash Flows

Solar Flares Fireworks is considering adding a new line of fireworks called Sparkly Boomers to its product line. Sparkly Boomers are expected to have a five year life. Research has been performed for a cost of $$6,000,000$ and resulted in the following data:

Sparkly Boomers will need a new factory at a cost of $$12$ million with an installation cost of $$4$ million. $(5$ year MACRS$)$ The land used to build the factory generates $$150,000$ of income a year.

Sparkly Boomers are projected to sell $500$ units a year at a price of $$35,000$ per unit and an expense of $$20,000$ per unit

Crackling Fire $($a current best seller$)$ is expected to sell $100$ units less a year with a price of $$17,000$ per unit and a cost of $$7,000$ per unit.

Soothing Lights is expected to sell $50$ units more a year with a price of $$5,000$ per unit and a cost of $$1,000$ per unit

If the project is implemented, for $$4,000,000,$ refurbishing the Crackling Fire's and Soothing Light's factories can be combined $-$ this cost is amortized using a $5$ year MACRS

The Crackling Fire factory was built $3$ years ago for a price of $$6$ million and can be sold today for $$4$ million. This factory had a $5$ year MACRS.

At the end of five years the Sparky Boomer factory will be sold for $$1$ million

This project will have no impact on net working capital but will increase fixed expenses $$600,000$ a year The company has a $20\%$ tax rate.

The company is $60\%$ debt with a pre$-$tax cost of $6\%$ and $40\%$ common stock. The common stock's beta is $2\mathrm{.}5,$ market rate is $10\%$ and risk free rate is $2\%.$

Using the Weighted Average Cost of Capital and the Profit Metrics $($payback$,$ Profit Index, NPV and IRR$)$ determine if you should do this project

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$/$ Annval cash flow pasbok perod Payback $=$