A locally-owned location here in Orange County is considering a four-year project that would require a $2,975,000 investment in equipment with a useful life of four years and a salvage value of $595,000. The company's discount rate is 8%. The project would provide net operating income in each of the four years as follows:

Revenue$2,735,000

Variable expense$1,000,000

Contribution margin$1,735,000

Fixed expenses

Advertising$200,000

Executive salaries$150,000

Other out of pocket costs$385,000

Depreciation$595,000

Total fixed costs$1,330,000

Net operating income$405,000

Note: For questions 1-5 below, refer to the original data, unless specified otherwise.

1. Which item(s) on the income statement shown above will not affect cash flows?

2. What is the project's net present value?

3. What is the project's payback period?

4. Assume the project requires $300,000 of working capital investment when it buys the equipment in year 0. Calculate the project's net present value, including the effect of this additional working capital requirement.?