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Assume that your company is considering a new project and has collected the following information about the project. ( Note: You may or may not

Assume that your company is considering a new project and has collected the following
information about the project. (Note: You may or may not need to use all of this information,
use only the information that is relevant.)
The project has an anticipated economic life of 6 years.
The company will have to purchase a new machine. The machine will have an up-front cost
of $1.8 million at Year 0. The machine will be depreciated on a straight-line basis over 6
years. The company anticipates that the machine will last for six years, and that after six
years, its salvage value will equal zero.
If the company goes ahead with the proposed product, it will have to invest $1 million in
NWC in Year 0.
At Year 6, the net operating working capital will be recovered after the project is completed.
You believe you will be able to sell 1 million units of your product at $7 per unit. It costs $2
per to produce each unit. And the project has fixed yearly expenses of $4 million.
The companys interest expense each year will be $100,000.
The new project is expected to reduce the after-tax cash flows of the companys existing
products by $100,000 a year but only in Years 1-3.
The companys overall WACC is 10 percent. However, the proposed project is riskier than
the average project and the projects WACC is estimated to be 12 percent.
The companys tax rate is 20 percent.
What information is not necessary when determining free cash flows? Why?
What free cash flows does this project generate?
Determine the NPV and IRR for this project. (Only Answer In Excel Please)

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