SYSTO inc. is considering the introduction of a new product WB PRO-3. The company invested 750,000 on R&D over the 3 past years to develop the new product. The introduction of the new product will generate additional revenues of 600,000, 700,000, 740,000, 660,000 at the end of each year for 4 years. Operating expenses related to the new project are expected to represent 50% of additional revenues.

The project will require purchase of new equipment to produce WB PRO-5 at a cost of 1,100,000. It would be depreciated for 800,000 using straight-line method over its useful life estimated at 4 years. It could be sold at the end of this useful life for a salvage value of 350,000.

Due to the initiation of project, SYSTO plans to sell in year 0 an existing equipment with a book value of 160,000 at 200,000 (selling price). The new project requires an initial investment in working capital of 250,000 in year 0. The discount rate applicable to the project is 12% and the companys tax rate is 40%

Required

1. Calculate the new projects net present value (NPV) and explain whether SYSTO inc. should go ahead with the production of WB-PRO3.
2. Calculate the payback period.