Q1.
| year 1 | Year 2 | Year 3 | Year 4-6 | |
| Sales in units | 9000 | 15000 | 18000 | 22000 |
| Sales in dollars | 315000 | 525000 | 630000 | 770000 |
| Variable expenses | 135000 | 225000 | 270000 | 330000 |
| Contribution margin | 180000 | 300000 | 360000 | 440000 |
| Fixed expenses: | ||||
| Salaries and other | 135000 | 135000 | 135000 | 135000 |
| Advertising | 180000 | 180000 | 150000 | 120000 |
| Total Fixed Expenses | 315000 | 315000 | 285000 | 255000 |
| Net Cash inflow (Outflow) | -135000 | -15000 | 75000 | 185000 |
Q2.
| Now | 1 | 2 | 3 | 4 | 5 | 6 | |
| Cost of equipment | -315000 | ||||||
| Working capital | -60000 | ||||||
| Yearly net cash flows | -375000 | -135000 | -15000 | 75000 | 185000 | 185000 | 185000 |
| Release of working capital | 60000 | ||||||
| Salvage value of equipment | 15000 | ||||||
| Total cash flows | -375000 | -135000 | -15000 | 75000 | 185000 | 185000 | 260000 |
| Discount factor (14%) | 1.0000 | 0.8772 | 0.7695 | 0.6750 | 0.5921 | 0.5194 | 0.4556 |
| Present value | (375,000) | (118,421) | (11,542) | 50,623 | 109,535 | 96,083 | 118,453 |
| Net present value | (130,270) |
On the basis of the net present value, it is not recommended that the company undertake this project. This is because its net present value is negative.
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