Duck Commander is considering the purchase of a facility in IL to expand their operations. This project makes Phil happy, happy, happy yet Willie requires a financial analysis to explore whether this project makes sense. The facility will cost $3 million and will have a useful life of 10 years. At the end of the 10 years, the expected salvage value is $70,000. The facility will generate additional cash flow each year of $500,000. Duck Commanders cost of capital is 8%. Round answers to nearest dollar.

Question 1

Assume Willie uses the net present value method to evaluate this project.

Calculate the net present value $ _________________

Question 2

Based on your answer to #1, should Willie accept or reject this project?

Jep mentioned that perhaps they should be using IRR to evaluate these projects. Uncle Si exclaimed irrr-irrrrrrrr-urghhhhh?! What does the acronym IRR represent?