Regis International Corporation (RIC), a Denver based technologycompany, has been applying its expertise in microprocessortechnology to develop a small computer specifically designed tocontrol home appliances. Once programmed, the computer wouldautomatically control the heating and air-conditioning system, hotwater heater, and even small appliances such as coffee makers. Byincreasing the energy efficiency of a home, the appliance controlcomputer can save on costs hence pay for itself in a few years.This effort has now reached the stage where a decision on whetheror not to go forward with production must be made.RIC’s marketingdepartment plans to target sales of the appliance control computerto the owners of larger homes - the computer is cost effective onlyon homes with 2,000 or more square feet of heated/air-conditionedspace. The marketing vice-president forecasts sales in 2018 to be$40 million and to increase by 7 percent per year. The engineeringdepartment has estimated that the firm would need a newmanufacturing plant; this plant could be built and made ready forproduction in 1 year, once the “go” decision is made. The plantwould require a 25-acre site, and RIC currently has an option topurchase a suitable tract of land for $1.2 million; the land optionmust be exercised on December 31, 2016. Building construction wouldbegin in early 2017 and would continue through the end of 2017. Thebuilding, which would fall into the MACRS 39-year class (ignore anyhalf-year convention), would cost an estimated $8 million, payableon December 31, 2017.The necessary manufacturing equipment would beinstalled late in 2017 and would be paid for on December 31, 2017.The equipment, which would fall into the MACRS 7-year class, wouldhave a cost of $6.5 million, including transportation, plus another$500,000 for installation.The project would also require an initialinvestment in net working capital equal to 12 percent of theestimated sales in the first year. The initial working capitalinvestment would be made on December 31, 2017, and on December 31of each following year, net working capital would be increased byan amount equal to 12 percent of any sales increase expected duringthe coming year. The project’s estimated economic life is 6 years.At that time, the land is expected to have a market value of $1.7million, the building a value of $1.0 million, and the equipment avalue of $2 million. The production department has estimated thevariable manufacturing costs would total 65 percent of dollarsales, and that fixed overhead costs, excluding depreciation, wouldbe $8 million for the first year of operation. Fixed overheadcosts, other than depreciation, are projected to increase withinflation which is expected to average 7 percent per year over the6 year life of the project.RIC’s marginal tax rate (federal andstate) is 40 percent; its weighted average cost of capital is 15%;and the company’s policy, for capital budgeting purposes, is toassume that operating cash flows occur at the end of each year.Since the plant would begin operations on January 1, 2018, thefirst operating cash flows would thus occur on December 31, 2018.The capital gains tax rate is the same as the ordinary income taxrate.As one of the company’s financial analysts, you have beenassigned the task of supervising the capital budgeting analysis.For now, you may assume that the project has the same risk as thefirm’s current average project, and hence you may use the corporatecost of capital, 15 percent, for this project. Calculate the NINV,NPV, IRR, and payback period for the appliance control computerproject. Create Best Case and Worst Case scenarios based on theSales number only. Assume the Best and Worst are +/- 25% forRevenues. Also, conduct a best/worst case scenario with operatingexpenses being 60% and 70% of sales. This will give you a basecase, and 4 risk analysis scenarios.In addition to showing thevalues for the NINV, FCFs, NPV, IRR, and payback period, pleaseprovide a copy of your spreadsheet that shows your calculatedvalues for the initial investment, the cash flows, and the salvagevalue.