Mumford Company is planning an upgrade to its warehouse. The upgrade involves computerizing many of the material handling activities. The cost of the upgrade is expected to be $2,100,000. The equipment falls into the 7-year IRS depreciation range (use a full year for every year of depreciation) and is expected to provide annual cash cost savings totaling $680,000 (primarily through labor related cost savings) over each of the next 6 years at which time the equipment will be sold. Mumford is in the 30% tax bracket and has decided to use a 12% hurdle rate, as a first pass, to examine the financial viability of the proposed project. At the end of year 6 the used equipment is expected to be sold for $180,000.

1. Prepare a well-organized schedule that concludes with the calculation of the expected NPV from this project.

2. Does the project, based upon the expectations above, clear the 12% hurdle rate? How do you know?