A new 3-year project will require an investment in equipment with a purchase price of $300,000.

The equipment will be depreciated straight-line to zero over its three-year tax life, after which time it will worth $50,000.

The project is expected to produce sales of:

Year 1 $300,000

Year 2 $350,000

Year 3 $500,000

Costs are expected to total 60% of sales

The project requires an initial investment in networking capital of $275,000 which will be recouped at the end of the project.

Tax rate is 21% The weighted cost of capital is 12%

Show the projects:

A)Complete the table below

B)Calculate Net Present Value

C) Calculate IRR

Cash Flows: Year 0 (today) Year 1 Year 2 Year 3

Sales:

Costs:

Depreciation:

EBIT

Taxes

Net income

Operating Cash flow

NWC

Equipment

Cashflows

NPV:

IRR: