International Foods Corporation (IFC) currently processes seafood with a unit it purchased several years ago. The unit, which originally cost $500,000, currently has a book value of $270,000. IFC is considering replacing the existing unit with a newer, more efficient one. The new unit will cost $759,000 and will require an additional $50,000 for delivery and installation. The new unit also will require IFC to increase its investment in initial new working capital by $50,000. The new unit will be depreciated on a straight-line basis over 5 years to a zero balance. IFC expects to sell the existing unit for $270,000. IFC's marginal tax rate is 42percent.

If IFC purchase the new unit, annual revenues are expected to increase by $125,000 (due to increased processing capacity), and annual operating costs (exclusive of depreciation) are expected to decrease by $23,000. Annual revenues and operating costs are expected to remain constant at this new level over the 5-year life of the project. IFC estimates that its net working capital investment will increase by $12,000 per year over the life of the project. After 5 years, the new unit will be completely depreciated and is expected to be sold for $80,000. (Assume that the existing unit is being depreciated at a rate of $50,000 per year.)

a.Calculate the project's net investment.

b.Calculate the annual net cash flows for the project.