Hi, here's the question, in two (2) parts, A and B.

A. NPV and IRR

Company projects unit sales as follows

Year Sales

1 73,000

2 86,000

3 105,000

4 97,000

5 67,000

Production requires 1,500,000 in NWC to start. Additional working capital investment each year to 15% or the projected increase in sales for the following year.

All NWC invested will be recovered at the end of the project. Total fixed costs are 3,200,000 annually. Variable production costs are $ 255 / Unit. Price per Unit is $ 385 each.

Equipment needed to start is 16,500,000. This equipment falls under MACRS seven year depreciation of property. At the end of five years the equipment will be sold for 20% original cost. Tax rate is 21%. Required return on this all-equity financed project is 18%.

Find NPV and IRR

Part B

If management decided to used Debt to finance the cost of the equipment (16,500,000) with the terms of 8% loan for 5 years, interest only payments yearly with

a balloon principle payment at the end of year five. How would using this Debt offer above change the financing nature of the project?

Thanks!