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Your department is preparing a proposal to install an automation production system to increase output. Your boss has given you the following information:

The company has already spent $$50,000$ for a marketing research to determine the viability of the new project. No matter the new proposal is accepted or not, this survey cost would not be recovered.

The initial investment on the system is $$4,800,000$ which will be depreciated straight$-$line to zero over its three$-$year tax life when will be worthless. It requires an initial investment in net working capital of $$160,000$ which will be recovered at the end of the project's life.

It is estimated to generate additional $$3,500,000,$$$3,800,000$ and $$4,400,000$ in annual sales in these $3$ years. Besides, it is estimated that the extra costs will be $$1,500,000,$$$1,700,000$ and $$2,200,000$ respectively in these $3$ years. The tax rate is $20$ percent.

$($a$)$ Explain whether the cost $$50,000$ spent on marketing research should be included in the project analysis or not.

$(2$ marks$)$

$($b$)$ Prepare the Pro Forma Income Statement for the proposed project in these $3$ years.

$(3$ marks$)$

$($c$)$ Prepare the Projected Operating Cash Flow Statement for the proposed project in these $3$ years. $(3$ marks$)$

$($d$)$ Copy the following table to your answer sheet and fill in all the blanks.

$(4$ marks$)$

$\backslash$table$[[,$Year,$],[,0,1,2,3],[$Operating cash flow,,,,$],[$Net Capital spending,,,,$],[$Change in net working capital,,,,$],[$Cash flow from assets,,,,$]]$

$($e$)$ Suppose the required return on the project is $10$ percent. What is the net present value $($NPV$)$ of the project? Explain whether the company should accept this project.

$(3$ marks$)$

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