A circus is considering opening a permanent location for one of its troupes.

The company already owns a vacant piece of land that it bought a few years ago for

$$1,000,000.$ However, it would also need to buy a large tent at a cost of $$400,000$ to install on the land. The tent would be depreciated over $4$ years using the straight$-$line method. The management believes that the new location would attract a larger audience and the company$$s revenues would increase by $$800,000$ per year for $4$ years if the project is accepted. Its expenses would also see an increase of $$500,000$ per year. The investment in working capital should be equal to $25\%$ of the revenues generated in the following year. After $4$ years, the circus will sell the permanent location $-$ the estimated selling price is $$200,000$ for the tent $$750,000$ for the land. Its tax rate is $40\%$ and the opportunity cost of capital is $16\%.$ Should the circus open a permanent location? Please estimate the cash flows and calculate the project$$s NPV and IRR to make a decision.

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