All Green Inc.plans a capital project, where it requiresan asset that costs $120,000. It has an expectedeconomic life of 3years. The asset will be depreciated using the straight-line method to $0book value.Thecompany expects thatthe assetwill be worth $30,000at the end of the project. Incremental salesare expected to be $100,000, $110,000, and120,000 for year 1 to 3, respectively.Correspondingexpenses are expected to be 50% of the sales.The company will need to invest $12,000 at time=0innet working capital, which will increase $1,000 each year.The cost of capital is 12% and thecorporate tax rate is 40%.Develop the cash flows for the project. What are its NPV, IRR,andMIRR?Interpret the results in your own words. Annual Depreciation = 120,000/3 = 40,00 Initial Investment: 120,000+12,000 = 132,000.

OCF1= 100,000*(.5)*(1-.4) + 40,000*.4 = 46,000; OCF2= 110,000*(.5)*(1-.4) + 40,000*.4 = 49,000 OCF3= 120,000*(.5)*(1-.4) + 40,000*.4 = 52,000 NWC Investment = 1000 for t=1, 2.

Terminal CF = 14,000 +30000*(1-.4) = 32000 NCF1= 46000- 1000 = 45,000 NCF2= 49000 1000 = 48,000 NCF3= 52000 + 32000 = 84,000

NPV = -132000 + 45000/1.12 + 48000/1.122+84000/1.123= 6,233.42 IRR = -132 + 45/(1+ IRR) +48/(1+IRR)2+ 84/(1+IRR)3= 0 and solve for IRR; IRR =14.14% MIRR =13.74%

2.Suppose All Greens Inc. in Question 1 above realizes that it will have to use a building that it bought 15 years ago for $150,000. This building is worth $200,000 today. It also spent $80,000 in R&D to develop the new product. How do these change the cash flows?