You have been asked to give a written analysis and recommendation to the management team of GRIZ, Inc. Your presentation should be professional and concise with a definitive recommendation for the management team to consider.

This project involves a new type of widget. The management team has predicted that the proposed project would result in sales of 6,000 units of the widget per year at a price of $1,000 each. The variable costs are estimated at $400 per unit and the product would have a four-year life.

Fixed costs for the project would run $450,000 per year and there would be an initial investment of $1,250,000 in manufacturing equipment. The equipment would be depreciated using MACRS over seven years. In year four, the equipment would be worth half of the purchase price.

GRIZ, Inc would invest $1,150,000 in net working capital at the start of the project. After that, net working capital requirements would be 25% of sales. Assume a 21% tax rate.

In prior analysis, the management team has used a minimum 2.5-year payback and 3-year discounted payback when determining the viability of projects. Assume a 9% discount rate.

The MACRS Table is below:

Year	MACRS Percentage
1	14.29 %
2	24.49 %
3	17.49 %
4	12.49 %

Should we undertake the project?

Your analysis should include, at minimum, the following:

• A pro forma income statement for each year.
• Calculations including:
• Payback
• Discounted Payback
• Profitability Index
• NPV
• IRR.

Answer rating: 100% (QA)

1 Net Present Value Net present value NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time Formula NPV1itCash flowinitial invest... View the full answer