Huff Inc. produces and sells tools and equipment to stores such as Home Depot and Lowes. The manager of Huff Inc. is considering investing in a new piece of equipment that will allow Huff Inc. to increase the quality of their products, thus enabling them to increase their revenues. The machine is estimated to cost $1,500,000 and have a useful life of 5-years. Huff Inc. has been instructed by their CPA to depreciate the equipment to a residual value of $10,000 for tax-purposes, but the manager believes it he would be able to sell it for $30,000 at the end of the useful life.

Because of the increase in quality, Huff Inc. would expect to see initial incremental revenue of $550,000 which would correspond with an increase of $150,000 in variable expenses. Both are expected to grow 7.5% each year. The company would also be forced to increase their insurance coverage by $2,000. This cost is expected to grow at 2.5% each year. In order to make the project feasible Huff Inc. would be required to increase their working capital at the time of the investment by $200,000 and would get this back at the end of the investment.

Huff Inc. has a tax rate of 35% and an after-tax required rate of return of 8%.

Calculate the following, the order presented:

1.) Net Present Value

2.) Internal Rate of Return

3.) Accrual Accounting Rate of Return