1. (15 points) A company is considering investing $2,500,000 in new equipment to produce an additional product. The company thinks that another $1,000,000 will be required in working capital to get the new process operational. The company also believes that $500,000 of the working capital will be released at the end of the 5 year functional life of the process. The company also thinks that the residual value of the equipment will be $1,500,000 (i.e. the equipment can be sold at the end of the project). The company expects cash flows from the project to be (in years 1-5, respectively) $500,000, $1,500,000, $1,500,000, $1,500,000, and $1,000,000. The companys required return on investments of this nature is 25%. Should the company accept this project or not? Please show your computations.

2. (5 points) Based on your results from problem 1, what is the projects internal rate of return as compared to the required rate of return? How do you know this to be correct? No computation required.