1. find net present value of the proposed project

2. find internal rate of return for project

3. accept or reject project?

JCrypt Corp is considering a project to create and sell tattoo inks containing tracking nanobots for states to apply on prisoners. The new service would require a capital expenditure for producing the nanobots in year o of $1,500,000 and have a service life of five years. The capital equipment would be depreciated on a straight-line basis over its service life (years 1-5) to a book value of zero. Operating income (EBIT), which includes COGS, Depreciation, and SG&A, for each of the five years would be $400,000. The capital equipment would have salvage value of $40,000 at the end of its service life. Upfront operating expenses (initial OPEX) for mixing nanobots into tattoo inks would occur in year o and would be $800,000. An inventory of $25,000 in ink pods would be put in place in year o. This inventory would return to zero at the end of the project's life. The project's cost of capital is 12,5%. Find NPV and IRR. The company's annual tax rate is 21%. Accept dr Reject Project? Information summary Operating income: $400,000 50,000 -80,000 Tax rate: 21% WACC: 12.50% Project life: 5 years Initial CAPEX: $1,500,000 Initial OPEX: $800,000 -10% Change in inventory: $25,000 Pretax salvage value: $40,000 NPV = . . . . IRR = 11%