CASE 2: Project Evaluation You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.9 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $2.1 million on an after-tax basis. In four years, the land could be sold for $2.3 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $175,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 5,100, 5,800, 6,400, and 4,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $425 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued PUTZ believes that fixed costs for the project will be $345,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $2.65 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $395,000. Net working capital of $125,000 will be required immediately. PUTZ has a tax rate of 22 percent, and the required return on the project is 13 percent. Based on these preliminary project estimates, what is the NPV of the project? What is the IRR? CASE 3: Cost Cutting Project Your company is considering a new computer system that will initially cost $1 million. It will save $300,000 per year in inventory and receivables management costs The system is expected to last for five years and will be depreciated using 3-year MACRS. The system is expected to have a salvage value of $50,000 at the end of year 5. There is no impact on net working capital. The marginal tax rate is 21 %. The required return is 8 % . Based on these preliminary project estimates, what is the NPV of the project? What is the IRR