Gustav has decided to introduce a new line of cat carriers. The carriers will sell for $750 per unit and have a variable cost of $360 per unit. Gustav determined he will sell 72,000 units per year for three years. Gustav estimated a fixed cost of $13,900,000 per year. He will need a new equipment that costs $12,300,000 and can be depreciated on a MACRS three-year basis. After three years, he plans to sell the equipment for $5,000,000. The new carriers will also require an increase in NWC of $2,100,000 that will be recuperated at the end of the project. Gustavs company has an effective tax rate of 40%. Gustav also determined how this new line will affect the other two lines his company is selling. The information about these two lines is summarized below: The high-priced carriers - sales will decrease by 8,500 units per year; - the selling price is $1,100 per unit; - the variable costs are $540 per unit. The cheap carriers - sales will increase by 11,000 units per year; - the selling price is $360 per unit; - the variable costs are $125 per unit. a) Gustav wants YOU to find the cash flows for this project. b) Should Gustav accept this project? Base your decision on the following methods: NPV and IRR. Gustav told you that the projects cost of capital is 20%

. Check points: CF0 = $-14,400,000, CF1 = $8,842,836, IRR = 47.97%