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Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory);
- Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
- Project and equipment life: 5 years
- Sales: $27 million per year for five years
- Assume gross margin of 50% (exclusive of depreciation)
- Depreciation: Straight-line for tax purposes
- Selling, general, and administrative expenses: 10% of sales
- Tax rate: 35%
Assume a WACC of 10%.
Compute the project's IRR and NPV.
Should the project be accepted? Why or why not?
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