Mervis Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2 million. The project also requires using a piece of land you have already owned. The land used was purchased three years ago for $4 million. If the firm decides to not take the expansion project and rent out the land for three years, it pays $4.5 million today. The project is estimated to generate $3 million in annual sales, with costs of $1.5 million from year 1 to year 3. The project requires an initial investment in net working capital of $0.4 million and after the project you retrieve the investment in net working capital. The fixed asset will be sold at a market value of $1 million at the end of year 3. Tax rate is 35 percent. The fixed asset falls into the three-year MACRS class. a. Calculate cash flow from assets (free cash flow) of the three-year expansion project from year 0 to year 3. b. the annual discount rate is 10%. What's the NPV of the expansion project ? Should you take the expansion project? c. The IRS gives you a second option to depreciated the fixed assets by 10% in year 1. 10% in year 2, 10% in year 3, and 70% in year 4. If you chose the second option, would the NPV be higher than or lower than NPV when using MACRS? Briefly explain the reason (intuition)