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A firm is considering an expansion project that will last forever. The project requires an immediate purchase of a new piece of equipment that costs $600,000. The equipment will be fully depreciated using straight-line method over the next four years. There is no other capital expenditure for the project in any future years.

The project will generate annual sales of $600,000 and incur annual costs of $250,000 (all costs except depreciation) for each year. For any given year, the level of net working capital should be 20% of sales of the same year. There is no other capital expenditure for the project. The corporate tax rate is 21%.

Calculate the project cash flow for each year of the next three years (0, 1, 2, and 3). Assume that the cash flow will increase by 3% forever beyond year 3. What is the terminal value at year 3? (30 points)

Evaluate the project using Payback period, Discounted payback period, and NPV. Assume that the discount rate for the project is 15%. (20 points)