Ten years ago, based on a before-tax NPV analysis, Johnson Wholesaling decided to add a new product line. The data used in the analysis were as follows:
$$
\begin{array}{lr}
\text { Discount rate } & 12 \% \\
\text { Life of product line } & 10 \text { years } \\
\text { Annual sales increase: } & \\
\text { Years 1-4 } & \$ 125,000 \\
\text { Years 5-8 } & \$ 175,000 \\
\text { Years 9-10 } & \$ 100,000 \\
\text { Annual fixed cash costs } & \$ 20,000 \\
\text { Contribution margin ratio } & 40 \% \\
\text { Cost of production equipment } & \$ 125,000 \\
\text { Investment in working capital } & \$ 10,000 \\
\text { Salvage value } & \$ 0
\end{array}
$$
Because the product line was discontinued this year, corporate managers decided to conduct a postinvestment audit to assess the accuracy of their planning process. Accordingly, the actual cash flows generated from the product line were estimated to be as follows:
$$
\begin{array}{|c|c|}
\hline \text { Actual Investment } & \\
\hline \text { Production equipment } & \$ 120,000 \\
\hline \text { Working capital } & 17,500 \\
\hline \text { Total } & \overline{\$ 137,500} \\
\hline
\end{array}
$$
$$
\begin{aligned}
&\text { Actual Revenues }\\
&\begin{array}{ll}
\text { Years 1-4 } & \$ 110,000 \\
\text { Years 5-8 } & \$ 200,000 \\
\text { Years 9-10 } & \$ 105,000
\end{array}
\end{aligned}
$$
$$
\begin{array}{lr}
\text { Actual Fixed Cash Costs } & \\
\text { Years 1-4 } & \$ 15,000 \\
\text { Years 5-8 } & \$ 17,500 \\
\text { Years 9-10 } & \$ 25,000 \\
\text { Actual contribution margin ratio } & 35 \% \\
\text { Actual salvage value } & \$ 5,000 \\
\text { Actual cost of capital } & 12 \%
\end{array}
$$
a. Determine the projected NPV on the product line investment.
b. Determine the NPV of the project based on the postinvestment audit.
c. Identify the factors that are most responsible for the differences between the projected NPV and the postinvestment audit NPV.