Assignment 4] Please show your work.

Toots, Inc. is considering buying a new plant to produce a new product line. The plant costs $550,000, but it would cost another $50,000 to modify it for a proper use. If Toots purchase this plant, this will be depreciated over its 3-year MACRS life (assume 33%, 45%, 15%, and 7%). Toots estimates that annual revenues will increase by $400,000, and annual expenses (excluding depreciation) will increase by $150,000. This project will last 3 years, and the estimated salvage value of this plant after 3 years is $200,000. If the plant is purchased, the firm's inventory level should increase now () by $120,000. The firm's tax rate is 34%, and its cost of capital is 10%.

1. What is the initial () cash outflows?

2. What is the operating cash inflows at ?

3. What is the operating cash inflows at ?

4. What is the total cash inflows (operating cash flows plus terminal cash flows) at ?

5. Compute the NPV and IRR of the project. Should this project be accepted?

Assignment 4] Please show your work. Toots, Inc. is considering buying a new plant to produce a new product line. The plant costs $550,000, but it would cost another $50,000 to modify it for a proper use. If Toots purchase this plant, this will be depreciated over its 3-year MACRS life (assume 33%, 45%, 15%, and 7%). Toots estimates that annual revenues will increase by $400,000, and annual expenses (excluding depreciation) will increase by $150,000. This project will last 3 years, and the estimated salvage value of this plant after 3 years is $200,000. If the plant is purchased, the firm's inventory level should increase now (t=0) by $120,000. The firm's tax rate is 34%, and its cost of capital is 10%. 1. What is the initial (t=0) cash outflows? 2. What is the operating cash inflows at t=1? 3. What is the operating cash inflows at t=2? 4. What is the total cash inflows (operating cash flows plus terminal cash flows) at t=3? 5. Compute the NPV and IRR of the project. Should this project be accepted