Company "WOINGER" is considering investing in a new projectAlpha. Project ALPHA has an overall life of 5 years and requires an initial purchase of a machine whose cost is 2.5M (M=million). In addition, project ALPHA requires the use of a vacant building owned by company "WOINGER", which can be sold for 150,000 after taxes (opportunity cost, that is, project ALPHA will delay the sale of the building and the receipt of 150,000). The sales connected with project ALPHA areexpected to be 1.2M in year 1, and then they are expected to increase by 10 per cent in each year until year 5. The machine will be depreciated according to the straight-line depreciation method until a residual value of 1M is reached at the end of the project. At the end of the 5 years, the machine will be sold at this residual value of 1M. The costs connected with project ALPHA are expected to be 25 per cent of sales. Changes of net working capital are 100,000 now (year 0), 200,000 in year 1, 150,000 in year 2, 100,000 in years 3 and 4. This additional net working capital will be completely recovered at the end of the project's life. The corporate tax rate is 35 per cent, and company "WOINGER" has a required return on all its projects of 16 per cent.

a) Calculate the Net Income (NI) for each year, from year 1 to year 5.

b) Calculate the Net Cash Flows (NCF) for each year, from year 0 to year 5.

c) Calculate the Net Present Value (NPV) of project ALPHA at the company's cost of capital of 16 per cent. Should the company's management accept project ALPHA, according to the NPV rule?

d) In the framework of strategic investment appraisal decisions, introduce and discuss the Internal Rate of Return (IRR) method.

e) Sketch how you would apply the IRR method in the case of project ALPHA.