1. We are evaluating a project that costs $1,950,000, has asix-year life and has no salvage value. Assume that depreciation isstraight-line to zero over the life of the project. Sales areprojected at 97,000 units per year. Price per unit is $41.25,variable cost per unit is $18.50 and fixed costs are $950,000 peryear. An initial investment of $250,000 in net working capital willbe required and it is assumed that this amount will be recovered atthe end of the project. The tax rate is 21 percent and you have thefollowing information about the capital structure of the firm. Dothis problem in Excel and attach the spreadsheet.

Book Value of Debt	$2,500,000,000
Market Value of Debt	$3,750,000,000
Book Value of Equity	$3,500,000,000
Market Value of Equity	$4,500,000,000
Dividend that the company has just paid	$2.35
Growth rate of dividends	4%
Current stock price	$32.50
Bond information	Coupon rate = 4%, maturity = 10 years, maturity value =$1,000and the current price is 1,080.25. Assume interest is paidsemiannually

1. Calculate cash flow and NPV. What is the sensitivity of NPV tochanges in the sales figure. Explain what your answer tells youabout a 500-unit decrease in projected sales.
2. What is the sensitivity of OCF to changes in the variable costfigure? Explain what your answer tells you about a $1 decrease inestimated variable costs.