After spending $20,000 on client-development, your company has just been offered a big production contract by a new client. Through the contract, the company estimates that it will sell 1,200,000 units per year for $3.40 per unit with fixed costs of $800,000 per year and variable costs of $1 per unit. Production will end after year 5. For the project, you will have to immediately buy new equipment valued at $2,000,000 and put it into use in year 1, and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. You need to hire 15 engineers from year 1 through year 5 with the combined annual salary of $1,200,000 to assist the expansion. The project will immediately increase your inventory from $200,000 to $500,000, and it will return to $200,000 at the end of the project. Your companys tax rate is 35% and your discount rate is 15%. What is the NPV of the contract?

1. Perform a capital budgeting analysis for this project and calculate its NPV and IRR.

Can someone help answer question 1? I have attached my work so far to see if I am on the right track. Thank you!

YEAR O $ $ $ $ Annual Revenues ($) Annual Cost of goods sold ($) Annual fixed operating costs ($): Additional annual lobor costs ($): Annual Depreciation ($) Taxable income ($) Corporate Tax rate (%) Corporate tax ($) Incremental Net Income YEAR 1 3,795,000.00 $ 1,200,000.00 $ 800,000.00 $ 240,000.00 $ $400,000.00 (240,000) $ 35% (84,000.00) $ (156,000.00) $ YEAR 2 3,795,000.00 $ 1,200,000.00 $ 800,000.00 $ 240,000.00 $ $640,000.00 (480,000) $ 35% (168,000.00) $ (312,000.00) $ YEAR 3 3,795,000.00 $ 1,200,000.00 $ 800,000.00 $ 240,000.00 $ $384,000.00 (224,000) $ 35% (78,400.00) $ (145,600.00) $ YEAR 4 3,795,000.00 $ 1,200,000.00 $ 800,000.00 $ 240,000.00 $ $230,400.00 (70,400) $ 35% (24,640.00) $ (45,760.00) $ YEAR 5 3,795,000.00 1,200,000.00 800,000.00 240,000.00 $230,400.00 (70,400) 35% (24,640.00) (45,760.00) $ 35% $ $ Annual Depreciation $400,000.00 $640,000.00 $384,000.00 $230,400.00 $230,400.00 Net Capital Expenditures $ 2,000,000.00 Changes in Working Capital $ 300,000.00 Annual Free Cash Flows ($) (2,300,000) (156,000) (312,000) (145,600) (45,760) (45,760)