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\mathrm{.}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.

$$ The company$$s interest expense each year will be $$100,000.$

$$ The new project is expected to reduce the after$-$tax cash flows of the company$$s existing

products by $$100,000$ a year but only in Years $1-3.$

$$ The company$$s overall WACC is $10$ percent. However, the proposed project is riskier than

the average project and the project$$s WACC is estimated to be $12$ percent.

$$ The company$$s 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.