# Question: this question has been completed but i dont understand...

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****** This question has been completed, but I don't understand how to get the right answers. If you could explain what I did wrong and how to get the right answer that'd be great!

**Capital Budgeting Problem.** ABC Corporation is
evaluating a new product. As assistant to the director of capital
budgeting, and you must evaluate the project. The project would be
produced in an unused building adjacent to ABC’s Sandusky plant;
ABC owns this building which has an historical cost of $325,000 as
well as accumulated depreciation of $325,000. Additionally, you
learn that ABC renovated the building last year at a price of
$125,000, expensing the cost. Required equipment for the project
would cost $225,000, plus an additional $15,000 shipping and
installation. Net working capital will amount to 8% of sales in the
following year. The machinery is considered 5-year property for tax
purposes--be sure to use MACRS.

The project is expected to operate for 5 years, at
which time it will be terminated. The cash inflows are assumed to
begin one year after the project is undertaken, or at t=1 and to
continue out to t=5. At the end of the project’s life (t=5) the
equipment is expected to have a salvage value of $65,000. Unit
sales are expected to total 138,000 units in the first year,
125,000 in the 2^{nd}, 142,000 in the third and 126,000 and
96,000 in the final years. The expected sales price is $1.38 per
unit. Cash operating costs for the project (i.e., excluding
depreciation) are expected to total 60 percent of dollar sales.
Overhead expenses to be allocated to the project are 1% of sales.
ABC’s marginal tax rate is 29% and its required rate of return is
9.5%. Tentatively, the project is expected to be of equal risk to
the corporation’s other projects. You have been asked to prepare a
spreadsheet analysis and to calculate NPV, IRR, profitability
index, and payback period. Assume your presentation is to a mixed
group, i.e., some do not have business degrees. Briefly explain
what NPV, IRR, PI and payback measure. Finally, provide a
recommendation on the project.