(show steps for each solution) Textile Corporation is evaluating the possibility of adding a new product line, and the capital budgeting analysis has been assigned to Karen , a newly hired MU graduate. The proposed production line would be in a currently unused space within Lansing Textile's manufacturing facility. The interest expense for the project is $5,000 each year. The current utility bill is $185,000 for the facility and it is not expected to increase with the new project. Lansing could sell the space for $50,000 if it is not used. The required machinery for the new product line would cost around $350,000, including $25,000 in shipping charges, and an additional $50,000 for installation. The machinery is expected to have a useful life of 4 years, and the corporation has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery's estimated salvage value after 4 years of use is $50,000. The proposed new product line is expected to generate an additional 2,000 units of sales annually for 4 years. The incremental cost of producing each unit in the first year, excluding depreciation, is estimated to be $75. The selling price per unit is expected to be $150 in the first year, and both the selling price and the cost of production are projected to be the same during the life of the project. The net working capital required to manage the new line is estimated to be equal to $200,000 at the start of the project. No additional NWC is needed during the life of the project. The firm's tax rate is 35%, and its weighted average cost of capital, which represents the risk-adjusted cost of capital for an average project (r), is 12%.

Years MACRS Depreciation Rates 1- 33.33%

2- 44.45% 3- 14.81% 4- 7.41%

A) Should you subtract interest expenses when calculating project cash flows?

B) Should you include the current utility bill of $185,000 when calculating project cash flows?

C) Should you include the $50,000 opportunity cost when calculating the initial cash flow?

D) Calculate the net cash flows for each year and based on the project net cash flows, what are the NPV, IRR, PI, and payback period? Do these indicators suggest that the project should be accepted?