Premier, Inc. wants to introduce a new project. The information of estimated cash flow in the next six years is provided as follows: The initial investment of the project will be $2.5 million. The salvage value of the project in six years will be 0.7 million. The estimated sales in Year 1 is $500,000. The sales are projected to grow at 15% for the next 3 years and then decline by 20% for Year 5 and 6. The new project will provide a projected operating cash flow of $350,000 for the first year, and the operating cash flows are projected to grow at 10% for the next 5 year. There is no initial outlay for NWC, but changes in NWC will occur in Year 1 with the first years sale. NWC for the new project will be 20% of sales and will occur with the timing of the cash flows for the year. The ending NWC for the sixth year will be zero.

5. If the companys cost of capital is 12%, should the new project be started? You can use NPV and IRR rules to justify your decision.

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