Start with the partial model in the file Ch$13$ P$18$ Build a Model.xIsx.

Webmasters.com has developed a powerful new server

that would be used for corporations' Internet activities. It would cost $$11$ million at Year $0$ to buy the equipment necessary to

manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to

$12\%$ of the year's projected sales; for example, $NW{C}_0=12\%($Sales ${?}_1).$ The servers would sell for $$25,500$ per unit, and

Webmasters believes that variable costs would amount to $$18,000$ per unit. After Year $1,$ the sales price and variable costs will

increase at the inflation rate of $4\%.$ The company's nonvariable costs would be $$2$ million at Year $1$ and would increase with

inflation.

The server project would have a life of $4$ years. If the project is undertaken, it must be continued for the entire $4$ years. Also,

the project's returns are expected to be highly correlated with returns on the firm's other assets. The firm believes it could sell

$900$ units per year.

The equipment would be depreciated over a $5-$year period, using MACRS rates. The estimated market value of the equipment

at the end of the project's $4-$year life is $$400,000.$

Webmasters.com's federal$-$plus$-$state tax rate is $25\%.$ Its cost of capital is

$10\%$ for average$-$risk projects, defined as projects with a coefficient of variation of NPV between $0\mathrm{.}8$ and $1\mathrm{.}2.$ Low$-$risk

projects are evaluated with a $7\%$ project cost of capital and high$-$risk projects at $13\%.$

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to

answer the questions below. Do not round intermediate calculations.