WallerWorld Foods is wants to expand into the fros business with a kale flavored fros

product. You need to evaluate the project to determine if it makes sense. Let's assume,

for this project, that everyone loves the flavor of kale.

The investment in plant, property, and equipment to make the fros includes the cost of the equipment, as well as shipping and installation costs. Inventory would also have to rise, as would AP, all at Time 0:

$395,000 Cost of equipment

$45,000 Shipping and installation

$41,000 Additional inventory buildup

$13,000 Increase in Accounts Payable

The machinery could be depreciated under the MACRS system as 3-year property.

The MACRS depreciation rates are 33%, 45%, 15%, and 7%.

Fros sales, and the project, will end after 4 years, when people realize they can drink fros without having to endure the taste of kale. The cash inflows will be realized at the end of each year, starting with the end of the first year. They will continue until the end of Year 4, when sales of kale fros will end. At the end of the project, the equipment is expected to have a salvage value after taxes of $35,500. All working capital will be reclaimed at the end of the four-year period.

WallerWorld has sales and costs forecasts detailed below. Also shown are the tax rate faced by the firm and its WACC (cost of capital). For the purposes of this analysis, the kale fros project is assumed to be of equal risk to other assets - although you may have your own private opinion that conflicts with that assumption, proceed as if it is true. Fill out the model as appropriate. Initial Costs Equipment $395,000 Shipping and installation$45,000 Expected salvage value$35,500 Changes in net WC: Inventories $41,000 Accounts payable$13,000 MACRS 3-year depreciation rates Year1234 Rate33.0%45.0%15.0%7.0% Expected unit sales132,000 Price per unit$2.95 Oper. costs (% of sales)60.0% Tax rate 30.0% WACC 10.0%

Question 3) Fill out Year 4 of the Terminal Year Cash Flows

Terminal Year Cash Flows Recovery of net working capital Salvage value Tax on salvage value Total termination cash flow Project Cash Flows Net cash flows$ - $ - $ - $ - $ - Calculate the projects: NPV IRR