Simpson is a sell-side analyst with SRS covering the pharmaceutical industry. One of the companies Simpson follows, Bay One, is evaluating a regional distribution center. The financial predictions for the project are as follows:

Fixed capital outlay is $1.50 billion.

Investment in net working capital is $0.40 billion.

Straight-line depreciation is over a six-year period with zero salvage value. Project life is 12 years.

Additional annual revenues are $0.10 billion.

Annual cash operating expenses are reduced by $0.25 billion.

The capital equipment is sold for $0.50 billion in 12 years.

Tax rate is 40 percent.

Required rate of return is 12 percent.

When reviewing her work, Simpsons supervisor provides the following comments. I note that you are relying heavily on the NPV And IRR approach to valuing the investment decision. I dont think you should use an IRR because of the multiple IRR problem that is likely to arise with the Bay One.

Required

1. Calculate the NPV of the Project

2. How would you evaluate the comments by Simpsons supervisor about not using the IRR ( No IRR calculations required)

3. What Other capital budgeting methods you would suggest to use and why ( No calculations required for this part)?

4. What is the final recommendation?

5. If Bay One decided to switch from straight-line to accelerated depreciation, would that impact the NPV and the annual operating income?

please do it in 10 minutes will upvote