Question L(40%) The company is considering manufacturing machinery of $1,670,000. The machinery will be depreciated straight-line to zero over its four-year tax life (depreciation rate is 25% per year). At the end of the project, the machinery can be sold for 26% of its original cost. The project requires an initial investment in net working capital of $198,000, all of which will be recovered at the end of the project. The project is estimated to generate $1,850,000 in annual sales, with annual costs of $1,038,000. The tax rate is 21 percent and the required return for the project is 16.4 percent. a new four-year expansion project that requires an initial investment in Instructions: 1. Calculate in itial outlay (total cash flow in Year 0). (5 % ) 2. Calculate after-tax salvage value. (5 %) 3. Complete the pro forma below and determine total cash flows for each year of project's life. (15%) 4. Calculate the NPV of the project. (5 %) 5. Calculate the IRR of the project. (5 %) 6. Explain your decision whether you recommend to accept or reject the project. (5 %) 2 4 0 1 Year Sales Costs Depreciation EBIT Taxes Net income Operating Cash Flow Capital spending Net Working Capital After-tax salvage value Total cash flow 2 www.euruni.edu