Project cash flow and NPV.The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of

$4,000,000

and will be depreciated using a five-year MACRS life,

. The sales manager has an estimate for the sale of the classic Thunderbirds. The annual sales volume will be as follows:

Year one:240		Year four:360
Year two:280		Year five:280
Year three:340

If the sales price is

$27,000

per car, variable costs are

$18,000

per car, and fixed costs are

$1,200,000

annually, what is the annual operating cash flow if the tax rate is

30%?

The equipment is sold for salvage for

$500,000

at the end of year five. Net working capital increases by

$600,000

at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.