Question 3 (50 points. 15 points for (a), 15 points for (b),15 points for (c), 5 points for (d)) II Fuoco makes wood-fired pizza ovens for restaurants. The firm is evaluating whether to create a new product line for home pizza ovens. The details of their plan are described below. Today is year 0 , and the cash flows are perpetual starting next year. - Each year, starting in year 1, Il Fuoco will build and sell 50 ovens for a price of $500 per oven. - The cost to make an oven is $300. - II Fuoco will purchase equipment in Year 0 for $15,000 and depreciate this cost on a straight line basis over the first five years of the project. They anticipate no further capital expenditures. - Each year they will incur labor, rent, marketing, and other costs of $3,800. - The corporate tax rate is 25%, and the annualized cost-of-capital is 10%. (a) What is the value of the home pizza oven project? Show your cash flow forecast and the NPV. Should II Fuoco undertake this project? (b) Here is balance sheet information for II Fuoco before the project: II Fuoco has 5,000 shares outstanding and the current share price is $21. Show how the book value and market value balance sheets will change if II Fuoco undertakes the project. Assume they pay cash. How much does the project increase their share price? (c) II Fuoco is worried about the new project reducing their ROIC in the short term. (McKinsey has been educating board members about investment returns and value creation...) They decide that they will increase the project's NOPAT in years 1 through 5 by depreciating the CAPEX on a straight line basis over 10 years rather than five years. What is the incremental NPV