2. M Corp is considering a new project. It requires $3 million in equipment (3 year MACRS life) and an increase in net operating working capital of $200,000 which will be recovered at the end of year 4. Revenues will be $4 million in year 1, $4 million in year 2, $5 million in year 3, and $3 million in year 4. Operating costs are 50% of revenues each year. Assume a tax rate of 25% and a cost of capital of 10% (no salvage value).

1. Find the NPV and IRR for the project.

(000) in thousands of $

Year 0 Year 1 Year 2 Year 3 Year 4

Equip Revenue $ 4,000 4,000 5,000 3,000

Oper Cost

Depr

Would you accept it?