As one of its major projects for the year, Steinbeck Depot is considering opening up a new store. The companys CFO has collected the following information, and is proceeding to evaluate the project.

The building would have an up-front cost (at t = 0) of $14 million. For tax purposes, this cost will be depreciated straight line to zero over seven years.

The store is expected to remain open for five years. At t = 5, the company plans to sell the store for an estimated pre-tax salvage value of $8 million.

The project also requires the company to spend $5 million in cash at t = 0 to purchase additional inventory for the store. After purchasing the inventory, the companys net operating working capital will remain unchanged until t = 5. At t = 5, the company will be able to fully recover this $5 million.

The store is expected to generate sales revenues of $15 million per year at the end of each of the next five years. Operating costs (excluding depreciation) are expected to be $10 million per year.

The companys tax rate is 40%.

What is the projects internal rate of return (IRR)?

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