TechInnovate Corp, a cutting-edge technology company, is considering the implementation of a new production line for their latest smartphone model. The proposed line would have a capacity of 500,000 units per year and an estimated useful life of 5 years. The initial investment for equipment and setup is projected at $15 million. Variable costs are expected to be $200 per unit, while fixed costs (excluding depreciation) are estimated at $5 million per year. Market research suggests a selling price of $600 per unit, with projected sales of 400,000 units in year 1, increasing by 5% each subsequent year. The company uses straight-line depreciation and has a required rate of return of 12%. TechInnovate's tax rate is 30%. The CFO is particularly interested in understanding the project's profitability and risk factors. She has asked you to prepare a comprehensive analysis that includes the net present value (NPV), internal rate of return (IRR), payback period, and breakeven point. Additionally, she wants you to conduct a sensitivity analysis on the NPV, considering potential variations in sales volume (±10%) and variable costs (±5%). How would you advise the CFO on whether to proceed with this investment? What key factors should be considered in the decision-making process, and how might changes in the technology landscape impact the long-term viability of this project?

Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.

The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?

Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.