ENX Corp. is evaluating an investment proposal to open a new production facility. Market research completed last year indicated that the firm can expect an increase in annual revenues from the new production of $3,000,000. The cost of conducting the market research was $450,000.

The estimated immediate, up-front cost of constructing the new facility is $8,500,000. For tax purposes this facility will be part of a CCA asset class that depreciates assets at a rate of 25% per year. If the facility is opened, ENX will immediately have to increase its inventory by $1,000,000 and accounts receivable by $500,000. In addition, its accounts payable will increase immediately by $500,000. There are no other expected changes in net working capital until the end of the project, at which time net working capital will return to its previous level.

The operating costs of the new facility are expected to be $550,000 per year. The company plans to operate the facility for 5 years and estimates that the facility's salvage value at the end of 5 years will be $1,500,000.

The company's tax rate is 40%. The cost of capital for ENX Corp. Is 6.5%.

a) Calculate the NPV of the investment proposal and provide a recommendation as to the acceptance or rejection of the proposed project. (8 marks)

b) Explain why the NPV decision rule is preferred to other methods such as the IRR rule and the payback rule. In your answer, be sure to define the IRR rule and the payback rule. (3 marks)

c) Explain the preferred method of selecting between multiple projects when a firm faces resource constraints. (2 marks)