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Ferrous Supplies, Inc., a manufacturer of finished steel products from recycled metals and recycled ferrous and non-ferrous metal and auto parts, is evaluating a project. The project that is being evaluated is that of a supply of 8K wheels annually to Ford Motor Company at an average price of $750 per wheel over a period of 5 years. The equipment required to produce the wheels will cost $2.4M, plus $100K of shipping and installation expenses. This equipment has an expected life of ten years and will be depreciated using the straight line method. After the 5-year contract with Ford Motor Company, this equipment can be sold for 700K, but the firm will need to pay $30K in removal expenses. The production of the wheels will require an additional investment of $500K in raw materials and the variable costs per wheel are estimated to be 70% of the selling price. The forecasted fixed costs associated with the wheels include 12 workers to operate the equipment earning an average of $40K each per year in salaries and benefits, $50K annually in maintenance costs, and $20K in miscellaneous fixed expenses. The marginal tax rate is 40% and the WACC is 15%.

1. Calculate the initial investment, annual after-tax cash flows, and the terminal cash flow.
2. Determine the NPV, and IRR, of this project. Should the firm accept or reject the project?