SAG Corp. is a manufacturer of cleaning products with locations in the United States. Its manufacturing plant in Greenville, SC is considering the purchase of a new filling machine. The cost of the machine is $7,500,000 and will require an initial working capital investment of $45,000. It is expected to result in cost savings of 20.0% of that location's production costs over the life of the filling machine which is 10 years. Over the 10 years an annual investment in working capital will be required of $45,000 at the start of each year and will be realized as a cash inflow in the final year when the project's life is completed and the accounts receivable and inventory are liquidated. At the end of its life it can be sold as scrap for 10% of the original cost. Five year MACRS depreciation will be used for tax purposes and the company's average tax rate is 24% and the marginal rate is 26%. Given the risk level of this project, SAG Corp. requires a rate of return 1% below its weight cost of capital.

The weighted cost of capital is 12%. Prepare an analysis to determine if this project will generate an attractive level of economic benefits. Specifically determine the net present value, internal rate of return, payback period and profitability index of the project.

PERIOD-------------PRODUCTION COSTS

0----------------------- $0.0

1------------------------$ 7,000,000.00

2------------------------$7,140,000.00

3------------------------$ 7,282,800.00

4------------------------$ 7,428,456.00

5-----------------------$ 7,577,025.00

6-----------------------$ 7,728,566.00

7-----------------------$ 7,883,137.00

8-----------------------$ 8,040,800.00

9-----------------------$ 8,201,616.00

10---------------------$ 8,365,648.00