A business is thinking about an investment of $28,000,000 (purchase price) in new equipment to replace older equipment with a book value of $12,000,000 and a market value of $20,000,000. If the business replaces the old equipment with the new equipment, it expects to save $17,500,000 in operating costs the first year. The amount of these savings will grow at a rate of 12 percent per year for each of the following three years.

The new equipment is being depreciated as follows: 33.3% of the original book value of the new equipment will be depreciated in the first year, 39.9% will be depreciated in the second year, 14.8% will be depreciated in the third year, and 12.0% will be depreciated in the final year. The salvage value of both the old equipment and the new equipment at the end of 4 years is 0. In addition, replacement of the old equipment with the new equipment requires an immediate increase in net working capital of $5,000,000, which will not be recovered until the end of the four-year investment.

Assume that the purchase and sale of equipment occurs today (Year 0), and all other cash flows occur at the end of their respective years. If the firm's cost of capital is 14 percent and is subject to a 40 percent tax rate. Show workings and excel document if possible.

Required:

a. The net investment

b. The after-tax cash flow at the end of each year

c. The internal rate of return on the investment

d. The net present value of the investment