Company is planning to invest in a project to produce motorboat fuel. The cost of equipment would be $7.7 million and the installation cost would be $0.40 million. The equipment has an estimated life of five years and a salvage value of $1.5 million. The equipment would be depreciated at 7% per year for tax purposes.

Starting production with this equipment requires additional investment of $3,290,000 for inventories with incremental accounts receivable of $2,277,000 and accounts payable of $9,000. In order to analyse the prospective demand for this new motorboat fuel in the market, the management has spent $43,000 for marketing purposes. On getting significant positive responses, the management has decided to go for production.

Expected sales would be $4 million in the first year and that will grow by 10% each year until the 5th year. The company will change the product line after 5 years. Costs have been estimated to be 52% of sales revenue. If the project is started, the companys regular net earnings of $98.5,000 per year from technical service would be stopped and annual interest expense will increase from $6,000 to $9,000.

It is also expected that the introduction of this motorboat fuel will increase annual sales of the companys parts by $77,000 (and that requires 61% costs on sale). The cost of capital is 11.0 percent and 35% tax rate is applicable.

Calculate NPV, IRR, PVI and Discounted Payback Period for the project