Question 5 Coconut Products Corporation ( CPC ) a small manufacturer of coconut by - products in ST . Vincent and the Grenadines has asked you to help decide whether it should invest 1 a new 3 - year project . To help with your analysis , the firm has provided you with the following pro forma income statements for the project ; Year 1 Year Year 3 Revenues $ 10 000 811000 812.500 Cost ofgoods sold 4 ,000 4500 5000 Amortization 4.000 3000 2000 EBIT $ 2000 8 3500 8 5, 500 In addition , you have also been provided with the following information . The project will require an initial investment of $15 090 in new equipment and one time maintenance costs for the equipment of $2 000 at the end of Year 2 . The equipment is expected to have a salvage value of $6 000 at the end of the project . Annual working capital requirements are anticipated to be 20% of revenues with the investment to be made at the beginning of each year . The firm has spent $12 000 on pre-testing the proposed product . The firm's tax rate is 25 / its cost of capital is 12 % Required : ( 1 Based on the net present value ( PV) method , should the project be undertaken ? Explain and show all calculations ( 7 marks ) ( 11 ) Briefly describe how a capital budgeting decision is made using the payback period ( PBP ) method and how it is made using the internal rate of return ( IRR ) method ( 3 marks )