CAPITAL BUDGETING EXERCISE I The Handheld Devices Division of Plasteel Communications is evaluating a proposal to introduce a new line of cellular telephones. In evaluating the proposed project, the company has collected the following information: The division estimates that the project will last for five years. The division will need to purchase new equipment that has an up-front cost of $30 million. At the end of year 5, the machinery will be sold for an estimated after-tax salvage value of $15 million. The machinery will be depreciated at a rate of $3 million per year. The division has already incurred $2 million in engineering development costs. For the first two years of the project, production would take place on an existing product line that has excess capacity. At the end of year two, new plant capacity would need to be acquired at an investment outlay of $20 million. This outlay would be depreciated at a rate of $2 million per year. At the end of year 5 the plant capacity would have an after-tax salvage value of $14 million. Working capital investment is projected to be 20 percent of sales, with full recovery at the end of year 5. The company estimates that sales of the new telephone will be $60 million in year 1; and $82 million, $140 million, $157 million and $120 million in years 2 through 5 respectively. Product & operating costs, excluding depreciation are expected to be $36 million in year 1; and S48 million, $82 million, 893 million and $71 million in years 2 through 5 respectively. The firm will need to borrow funds to finance the equipment purchase, Interest costs will be $4 million annually. The company's tax rate is 40 percent. The project's WACC is 15 percent. What is the NPV of the project? Should the firm accept/reject the project