Celcius is considering developing an appliance called IOTA.

Sales forecast for IOTA is 40,000 units per year. The product will have a viable market for 4 years at an expected price of $200, after which the product will have zero sales. Production will be outsourced at a cost of $90 per unit.

To verify the compatibility with the IOTA system, Celcius must establish a new lab for testing purposes. They will rent the lab space, but need to purchase $3.5 million of new equipment. The equipment will be depreciated using the straightline method over a 5year life down to zero and will have zero resale value at that point.

The lab will be operational in one year, at which point IOTA can ship the product. Celcius expects to spend $2.0 million per year on rental costs for the lab space, as well as marketing and support for this product.

Celcius expects no incremental cash or inventory, but receivables related to IOTA are expected to account for 15% of annual sales and payables are expected to be 15% of the annual cost of goods sold.

Celcius managers believe that the IOTA project has risks similar to its existing projects, for which it has a cost of capital of 15%. Assume the company's tax rate is 40%.

A) What is the IRR of the project?

B) What is the Payback Period of the project in years?