FFME is considering investing in the production of a new product Y. To this end a preliminary market research is undertaken that costs $400,000 in year 0. The financial management of the firm expects that unit sales of the new product Y will be as follows: $75,000 units in year 1, $70,000 units in year 2, $120,000 units in year 3, $110,000 units in year 4, and 80,000 units in year 5. Production of the new product Y will require $1.5M (M=million) in net working capital (NWC) to start, which will be completely recovered at the end of the 5 years. Total fixed costs are $800,000 per year, variable production costs are $300 per unit, and the units are priced at $400 each. The equipment needed to begin production has an installed cost of $25M and can be depreciated by using the straight-line depreciation method. At the end of the 5 years, this equipment can be sold for 20 per cent of its acquisition cost. FFME is in the 35% marginal tax bracket and has a cost of capital of 15 per cent.

A) Calculate the Earnings Before Interest and Taxes (EBIT) in each year, from year 1 to year 5.

B) Calculate the Net Cash Flow (NCF) in each year, from year 0 to year 5.

C) Calculate the Net Present Value (NPV) of the project at the discount rate of 15 per cent. Should the project be accepted according to the NPV method?