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Project 1 Calculations must be done in Excel You must create your own spreadsheet (do not copy and paste someone elses). This question should be done using Method 1 as outlined in lecture 6 (i.e. Tax Effects, then Cash Flows then NPV). ABC corporation projects their future unit sales for a new headphone. The projected unit sales are as below. 1 2 3 4 5 Unit sales 70000 80000 120000 100000 90000 To produce the headphones, the initial net working capital of $2,000,000 is required and additional net working capital is also required each year, which is 20% of the projected sales increase for the following year. The net working capital will be recovered at the end of a project. In addition, the initial installation cost of the machine for production is $20,000,000. The machine will be depreciated for tax purposes using straight-line depreciation with the useful life of 8 years. Also, costs and unit price are as below. Fixed cost $3,250,000 per year Variable cost $280 per unit Price $425 per unit In five years, the machine can be sold for about 20% of its acquisition cost. The tax rate is 30% and the required rate of return is 18%. Required (a) What is the NPV of the project? Explain and defend your processes, answer, and calculations clearly. (b) Assuming that the project can be repeated indefinitely, what is the NPV of the project? Suppose that there is another project with the NPV of $4 million and the NPV of $6 million. Which project would you choose, assuming that two projects are mutually exclusive and can be repeated indefinitely? Why? Explain and defend your processes, answer, and calculations clearly

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