1. IVP, Inc. is considering purchasing a new piece of heavy machinery for $18.50 million. The machinery will be depreciated to zero book value over 10 years using the straight-line depreciation method but is expected to have a residual market value (selling price) at the end of the 10 years equal to $0.90 million. During the first year the machinery is expected to increase the companys revenues by $1.70 million and, in addition, enable the company to save $1.50 million in employee salaries. Both of these numbers are expected to remain constant for the rest of the machinerys useful life. The income tax rate is equal to 18%; the company will use 80% of equity and 20% of debt to finance to investment; the risk-free rate in the country is equal to 2.90%, the companys beta has been estimated at 1.10, and the market risk premium (MRP) is equal to 4.90% while its cost of debt (before tax) is equal to 3.50%.

a) Estimate the projects cash flows. (4 Points)

b) Estimate the projects WACC. (2 Points)

3. Estimate the projects NPV. (1 Point)

4. Estimate the projects IRR. (1 Point)