Solomons Electronics Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by , a recently graduated BBA.

The production line would be set up in unused space in Solomons' main plant. The machinerys invoice price would be approximately $190,000, another $12,000 in shipping charges would be required, and it would cost an additional $25,000 to install the equipment. The machinery has an economic life of 4 years, and Solomons has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of $30,000 after 4 years of use.

The new line would generate incremental sales of 1,350 units per year for 4 years at an incremental cost of $120 per unit in the first year, excluding depreciation. Each unit can be sold for $205 in the first year. The sales price and cost are both expected to increase by 4% per year due to inflation. Further, to handle the new line, the firms net working capital would have to increase by an amount equal to 13% of sales revenues. The firms tax rate is 35%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 12%.

g. Calculate the net cash flows for each year. Based on these cash flows and the average project cost of capital, what are the project's NPV, IRR, MIRR, PI, and payback? Do these indicators suggest that the project should be undertaken? Projected Net Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 Investment Outlay: Long Term Assets (Depreciable Basis) Net Operating Cash Flors CF due to investment in NC Salvage Value Cash Flors Net Cash Flors NPV IRR PI MIRR Find Payback Years 2 0 1 3 4 Cash Floy Cumulative Cash Flow for Payback Payback =