Allied Corporation is considering a new expansion project, Project S. Project S is a new health-food product that Allied is thinking of introducing to the market. Along the way, Allieds finance staff has received a lot of information, the highlights of which are summarized below:

Project S will require Allied to purchase $900,000 of equipment in 2013 (t = 0).

Inventory will increase by $175,000 and accounts payable will rise by $75,000. All other working capital components will stay the same, so the change in net operating working capital (NOWC) is $100,000 at t = 0.

The project will last for 4 years. The company forecasts that they will sell 2,685,000 units in 2014, 2,600,000 units in 2015, 2,525,000 units in 2016, and 2,450,000 units in 2017. Each unit will sell for $2.

The fixed cost of producing the product is $2 million each year, and the variable cost of producing each unit will rise from $1.018 in 2014 to $1.221 in 2017. (assume it is $1.078 in 2015 and $1.046 in 2016).

The company will use accelerated depreciation and write off 33% of the basis during Year 1, 45% in year 2, 15% in Year 3 and 7% in Year 4.

When the project is completed in 2017 (t = 4), the company expects it will be able to salvage the equipment for $50,000, and it expects that it will fully recover the NOWC of $100,000.

The estimated tax rate is 40%.

Based on the perceived risk, the projects WACC is estimated to be 10%.

Evaluate the projects NPV and IRR.