8 Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $1m and which it currently rents out for $120,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an up-front investment into machines and other equipment of $1.4m. This investment can by fully depreciated straight-line over the next 10 years for tax purposes. However, Arnoid Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $500,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year, but will be recovered at the end of the project. Sales of protein bars are expected to be $4.8m in the first year and to stay constant eight years. Total manufacturing costs and operating expenses (excluding depreciation) are 80% of sales, and profits are taxed at 30%. If the cost of capital is 15%, what are the NPV and the IRR of the project? (Adapted from Berk and DeMarzo, 2011)