Larry Smith has been the Chief Financial Officer (CFO) for Ace Manufacturing for nearly 20 years. Ace Manufacturing owns the factory building that houses its operations, but the companys production levels are nearing maximum capacity for the factory buildings size. The company is considering expanding and possibly constructing a new larger factory building to house all of its operations. Construction of the new factory building is expected to cost $4,000,000, and the building is expected to have a 14-year life. Bill Jones, the companys Chief Executive Officer (CEO), has asked Larry to run the numbers and come up with a recommendation for approval or rejection of the expansion project to be presented to the companys board of directors. Bill reminds Larry that the company must have a rate of return of at least 6% on any investment. After carefully analyzing the numbers, Larry estimates that the expansion project could produce maximum additional future annual net cash flows of $425,000. The present value factors from the Present Value of an Annuity of $1 Table for 14 periods are as follows: Periods 4% 5% 6% 7% 14 10.5631 9.8986 9.2950 8.7455 REQUIRED: 1. Calculate the Net Present Value (NPV) of the expansion project. Assume that the factory building will have no salvage value. Show all of your calculations.

2. Calculate the Internal Rate of Return (IRR) for the expansion project. Show all of your calculations.

3. Based on the results of your NPV and IRR calculations above, should Larry recommend approval or rejection of the expansion project? Provide explanations for your answer.