Queen Ltd is having a ...4-year... project which involves launching a new product. The project requires an investment of ...$1,000,000.... in fixed assets. The fixed assets will be depreciated in .4-year... under the straight-line method according to regulations. Sales revenue in the first year is forecasted at $800,000 and expected to grow at .15%.... until the end of the project. Expenses account for approximately 50% of sales revenue (including depreciation expense). In addition, running the project will require an immediate investment (at the beginning of the first year) in working capital of $50,000. The amount of working capital will grow at 10% per year for two years and then remain constant until fully recovered in the last year of the project. The corporate tax rate is 25% and the required rate of return for the project is 14%.

Requirements:

a. Compute the project's cash flows in each year (year 0 to the end). [1.25 marks]

b. Compute NPV, IRR and payback period of the project. [1.25 marks]

c. Based on your computation in part b, assuming no further information is provided, decide (with explanation) whether or not to accept the project. [0.5 mark]