Q7

A company is evaluating an expansion project that requires an initial investment of $800,000. The project will last for 6 years and is expected to generate annual revenues of $300,000 and annual operating expenses of $100,000. The company’s tax rate is 25% and the discount rate is 12%. The present value factors for 12% are:

Year	PV Factor
1	0.893
2	0.797
3	0.712
4	0.636
5	0.567
6	0.507

Requirements:

1. Calculate the annual net cash flow after tax.
2. Determine the present value of these cash flows.
3. Compute the NPV of the project.
4. What is the IRR for the project?
5. Explain if the project should be accepted based on NPV and IRR.