Summer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $4.5 million. The fixed asset falls into the three-year MARCRS class (see the Table) and will be depreciated over its three-year tax life. The project is estimated to generate $3,550,000 in annual sales, with costs of $1,040,000. Suppose the project requires an initial investment in net working capital of $500,000, and the fixed asset will have a market value of $610,000 at the end of the project. The tax rate is 21%. Suppose that the required return on the project is 10%.

What is the projects NPV and IRR?

Should the firm accept this project?

Year MACRS Percent 1 33.33% 2 44.45% 3 14.81% 4 7.41%