Hello,

I have problem with this exercise. Could you please help me with this? Thank you :-)

2. A company is considering an investment into a new project. The company is going to sell a new purification system. They are planning the sales of 25 000 systems a year. The costs of market research was $100 000 and this money is already spent. The price of the product is 100$. The duration of the project is 5 years. The variable costs are estimated 40% of the sales price. The fixed costs are 325 000 per year (excl. depreciation). The investment into fixed assets is 2.5 million, is fully amortised in 5 years, and has no market value at the end of the project. The need for investments into current assets is expected to be 15% of the sales. The firm expects that all investments into current assets can be converted into cash at the end of the project. The corporate tax rate on profits is 25%. a. Find the cash flows for the project b. Should the company invest, if the required rate of return from the project is 12%. Compute both NPV and IRR