(Suggested time:45 minutes; Difficulty level: Moderate) (22 marks) It is now 2021 and JasNav Inc. has been operating since 1952. The company has gone through several transitions over the past two decades. As 2020 was a difficult year with Covid-19, the board of directors met to plan for the next 5 years. In the board meeting, a decision to replace the current equipment used to manufacture keyboard accessories was discussed.

The supplier for the new equipment has stated that the purchase price is $1,285,000. In order to get the equipment up to full use, there are additional costs of $34,000 for delivery and $6,000 for installation. Maintenance of the new equipment also costs $5000 a year. The equipment will have a 5-year useful life and is expected to have a salvage value of $128,000 at the end of its economic life. Both the new equipment and current equipment are considered industrial machinery and thus fall into Class 8 for tax purposes (20%). If JasNav decides to install the new equipment, they have to use a small land (next to the factory) they acquired four years ago for $800,000. The current price of the land is $700,000, and the managers expect its price drops to $600,000 in five years.

The production manager was paid $100,000 in bonus last year to conduct research on available options. As the production manager is discussing the project, he mentioned that $420,000 investment on working capital would be needed to start the project (replacing the current equipment) and additional net working capital investments each year equal to 20% of the projected sales increase for the following year. All investments on NWC will be reclaimed at the end of the project. The current equipment can be sold for a salvage amount of $55,000 now. If JasNav keeps the current machine, it can sell it for $5,000 in five years.

With the replacement of the equipment, the company will be able to assemble the latest keyboard accessories in the plant and the expected sales for the next 5 years are as follow.

Year	Projected Unit Sales
2022	10,700
2023	11,000
2024	11,600
2025	11,900
2026	12,400

Each of the Keyboards can be sold for $70 and the variable costs per unit are $21.5. JasNav is subject to a 35% income tax rate. Management assumes that all annual cash flows and tax payments occur at the end of the year. The replacement project has the same risk as the average project taken by JasNav, and the WACC of the company is 8%. All classes of assets continue to exist after 5 years.

Required:

1. (20 marks) Based on these preliminary project estimates and if the company can write off 50% of its capital loss against any taxable Capital Gains, what is the NPV of the project?
2. (2 marks) What is the IRR?