Frito Lay is considering a new line of potato chips. This will be a three year project.

a. Frito Lay paid $1,000,000 last year to a winning person who thought of the new line of potato chips.

b. New equipment will cost $7,000,000 and depreciation is by the 7-year MACRS method. Purchase of the equipment will require an increase in net working capital of $750,000 at time 0 (which will be recaptured at the end of the project).

c. The new potato chips will generate an additional $6,000,000 in revenues in the first year, $4,000,000 in revenues in in the second year, and $2,000,000 in revenues the third (final) year revenues.

d. In addition to the additional revenues outlined in c. The new potato chips will decrease existing chip line revenues by $2,000,000 the first year, $1,000,000 the second year, and $500,000 the third year.

e. The new project is estimated to have expenses of $150,000 each year.

f. At the conclusion of the project, the equipment can be sold for $4,000,000.

g. The firms marginal tax rate is 20 percent, and the projects cost of capital is 20 percent.

The following is the MACRS Depreciation Table:

Year	3-year	5-year	7-year
1	33.33%	20.00%	14.29%
2	44.44%	32.00%	24.49%
3	14.82%	19.20%	17.49%
4	7.41%	11.52%	12.49%
5		11.52%	8.93%
6		5.76%	8.93%
7			8.93%
8			4.45%

What is the after tax OCF in year 1?

What is the after tax OCF in year 2?

What is the after tax OCF in year 3?

What is the project's NPV?

- Should you ACCEPT or REJECT the project?

A) ACCEPT

B) REJECT