Acme Co makes widgets. You have been asked to help Acme decide if they should start making gadgets.

Please prepare a cash flow model of the gadget project using the information below. Calculate the NPV with a discount rate of $10\%$ and an IRR. Determine what the annual Sales Growth Rate would need to be for the NPV to be zero.

$-$ The gadget market will exist for ten years. Sales will start at $200,000$ in year one and grow by $5\%($Sales Growth Rate$)$ a year until year $10.$

$-$ Gadgets will be sold for $$100.$ It will cost $$60$ to make each gadget.

$-$ Assume the operating costs for gadgets in year one is $40\%$ of gross profit in year one and grows by $4\%$ each year until year $10.$ So$,$ sales grow by $5\%$ and operating costs grow by $4\%.$

$-$ Last month Acme paid a consultant $$250,000$ to design the gadget production facility $($the

$$Facility$).$

$-$ The cost of the Facility is $$20,000,000.$ This cost will be incurred immediately $($year $0).$ You should depreciate the Facility on a straight$-$line basis over ten years $(10\%$ a year$).$ This means there will be $$2,000,000$ of depreciation every year. Assume the Facility will be sold after ten years for $10\%$ of the purchase price.

$-$ Acme will buy $$1,000,000$ of inventory immediately $($time $0).$ Inventory will increase by $10\%$ every year from year $1$ to year $5$ and then fall by $10\%$ from year $5$ to year $9.$ Inventory will be $0$ at the end of year $10.$

$-$ Acme will generate $$200,000$ of accounts payable immediately in connection with purchasing the initial inventory. Accounts payable will remain $20\%$ of inventory throughout the term of the project and will be $0$ at the end of year $10.$

$-$ Accounts receivable will be $10\%$ of revenue for years $1$ through $9$ and $0$ at the end of year $10.$

$-$ Capital expenditures will be $$120,000$ every year.

$-$ The tax rate is $21\%.$