A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost a total of $$400,000$ and will last $10$ years, at which time they will have an estimated salvage value of $$25,000.$ However, a capital upgrade of $$100,000$ will be required at the end of five years. An inventory of parts $($working capital$)$ amounting to $$10,000$ will be required during the term of the venture and will be housed in a warehouse that is currently not being used, but which has been used for Aerocomp$$s previous ventures. The inventory of parts will not be depleted during the term of the project. The warehouse could be rented out at $$5,000$ per year.

This enterprise is expected to generate revenues of $$150,000$ a year for $10$ years. The federal experts on wind will impose their new tax on the wind, and that will cost the venture $$7,500$ a year. This new tax will be a deduction for income tax purposes and will be known as the BWT $($Big Wind Tax$).$

Tax rate $=25\%$

CCA rate $=5\%$

Cost of capital $=20\%$

Norman Windsor, CPA, has recently joined Aerocomp as Senior Financial Analyst. It is Friday morning. John met Norman while he was buying the morning coffee before he started his work for the day. John tells him about the company plan and shares with him three proposals that the Board is considering. The Board members do not have any experience in financial analysis. Before the Board decides on the projects, John asks Norman to prepare the financial viability of three alternative investments.

John asks Norman to do the following:

$($ Everyone has to do the following $3$ things for their assigned case.$)$

a$.$ Identify cash inflows and cash outflows for each project, and how these cash flows will be treated in the calculations of financial indicators.

b$.$ Calculate for each project the four indicators of financial viability, e$.$g$.,$

a$.$ Net Present Value

b$.$ IRR

c$.$ Payback period and document them in a table.