Sales				2000000
Direct Materials and Labor				1500000
Sales Commissions				20%
Economic life				5
Cost of Capital				7%
Initial Cost				200000
Disposal Value				100000
Tax Rate				0.4
Years				3

1. Ignoring taxes, what is the NPV of the project? What is the IRR of the new project? Assume the machinery will be installed on January 1 of 20x1 and be depreciated using the straight line method. (it is easiest to calculate IRR using Excel)

2. Assuming a 40% tax rate, and that according to the IRS this is a 5 year asset (MACRS rates for Yr 1 .2, YR 2 .32, YR 3 .192, YR 4 .115, Y5 5 .115, YR 6 .058), what is the NPV? What is the IRR?

3. To stimulate industrial development, the tax rules allow 60% of the asset cost to be deducted the first year, with the remaining f the asset cost to be deducted equally over the remaining 4 years (since it is considered to be a 5 year asset). What is the NPV, What is the IRR?

4. Given the information in 3, if Baloon Popper requires a 12 % return on all new investments, should they take on this investment?

5. Given the information in 3, What is the payback period? What is the accounting rate of return?

You will be graded 80% on accuracy and 20% on clarity of your findings. If I have to hunt for your answers, or it is not clear how you got your answers, I will take off points.