Answer with Excel or Handwritten. Murphy Grains, a major grain processor in the Midwest, is deciding whether to invest in new machinery used to process quinoa, a gluten-free grain alternative. Here are the details of the potential investment:

• The new project will require the company to purchase fixed assets that will cost $2,000,000 now (at t=0). These costs will be depreciated on a straight line basis to a salvage value of zero based on a five year depreciation schedule.
• Murphy expects to end the project and sell the assets for $300,000 after four years of operation.
• A major factor in the decision to go ahead with the project was the results of extensive research. One year ago, the company spent $500,000 for this study.
• The project will require a $350,000 investment in inventory now (at t=0), which will generate $250,000 in accounts payable (also at t=0). The project's net working capital balance will then stay constant until all working capital is recovered at the end of year 4, when the project is shut down.
• Murphys tax rate is 30%.
• The project is expected to produce sales of $11 million in year 1, and this will grow at 5% per year for years 2 through 4.
• The operating costs, excluding depreciation, are expected to be $4 million per year in year 1, also growing at 5% per year for years 2 through 4.

a. What is your estimate of the incremental free cash flows this project would generate now (at t=0) and for the four years the project would be operated?

b. The appropriate discount rate is 12% for this project. What is the projects NPV?