41. Net Present Value Analysis, Multiple Investments, and Qualitative Factors. Oil Production, Inc., would like to drill oil from land the company already owns. The equipment is expected to cost $4,000,000, has a useful life of 5 years, and will be sold at the end of 5 years for $400,000. Annual costs for maintenance and other cash expenses will total $550,000. Annual net cash receipts resulting from the sale of oil are predicted to be $1,900,000. Working capital of $270,000 is required at the beginning of the project and will be returned at the end of 5 years. The equipment will require refurbishing at the end of year 3 at a cost of $300,000. Although the companys cost of capital is 15 percent, management established a required rate of return of 20 percent due to the high risk associated with this project.

Required:

• Find the net present value of this investment. Round to the nearest dollar.
  1. Use trial and error to approximate the internal rate of return for this investment proposal.
  2. Should the company accept the proposal? Explain.
  3. What qualitative factors might improve managements view of this proposal?