Holland Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,350,000. Producing the cell phone requires an investment in new equipment, costing $1,440,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to increase by $180,000, which Holland will recover by the end of the new products life cycle. Annual cash operating expenses are estimated at $810,000. The required rate of return is 8%.

1. Prepare a schedule of the projected annual cash flows.

2. Calculate the NPV using only discount factors listed below:

Discount Factor

Year 0 1.00000

Year 1 0.92593

Year 2 0.85734

Year 3 0.79383

Year 4 0.73503

Year 5 0.68058

3. Calculate the NPV using discount factors listed below:

Discount Factor

Year 0 1.00000

Year 1-4 3.31213

Year 5 0.68058