If EH Logistics adopts the automation technology to handle packages then:

• It has to invest in two instalments $1,900,000 in the current year and $1,400, 000 in year 1.

• Unlike the labour technology, production will start from year 2.

• With the automation process EH Logistics can pack 700,000 units in year 2 and this number will likely to go up by 107% in year 3, and then 10% each year in years 4-6, compared to the previous year.

• The number then will go up by 3.5% compared to year 6 for in year 7 and then it will remain constant.

• The price per unit package is $2.

• The change in net working capital in year 2 is $160,000.

• For the following 4 years the change in net working capital is $11,000, $17,000, $20,000, $24,000.

• From year 7 to 15 the change in net working capital remains constant at $30,000.

• To run and maintain the automation process EH Logistics has to incur fixed cost of $210,000 in year 2 and $110,000 for the life of the project.

• The variable cost per package is $1.15. The machines can be depreciated $167,000 per year for tax purposes.

• EH Logistics can salvage $938,000 by selling the machines at the end of their useful lives.

• Since this is a big investment, EH Logistics has to source fund from different sources. So the opportunity cost of capital for this project is 14% in year 1 and 2, 11% in year 3 and then 9% for the rest of the years.

• Thetaxrateis30%.

• Thereisnorecoveryofworkingcapital.

Calculate NPV and IRR?

THanks