A company is undertaking a new project. Applicable data follows.

Project duration is 2 years

Required investment for new equipment is $55,000

Depreciate via 5-year MACRS

The machine will be sold for $27,000 (todays dollars) at the end of 2 years

The project will bring additional revenue of $114,000 (actual dollars) but will incur additional O&M costs of $53,800 (todays dollars).

An initial Working Capital investment of $12,000 at year 0 is required. Subsequent years will require additional Working Capital at the general inflation rate. Any investment in working Capital will be recovered at the end of the project.

To purchase the equipment, the company will borrow $50,000 at 10% compounded annually over a 2 year period. You will need to determine the 2 equal annual payments used to pay off the $50,000. The company itself will finance the remaining $5,000.

General inflation rate is 5% per year for the project

Marginal tax rate is 40%

Market interest rate i is 18%

Given the information,

o Determine the end of year cash flows for years 0 through 2

o Compute the Net Present Worth for this 2-year project o Compute the IRR of the project

Year 0_______________________________________

Year 1_______________________________________

Year 2_______________________________________

NPW____________________________

IRR____________________________