The Boning Co., an aircraft manufacturing company, is considering an expansion in the production of their famous 887 airliner. Determine whether the company should accept or reject the expansion project using (1) the IRR rule and (2) the NPV rule.

(1)The expansion will require the purchase of machineries that cost $56,000,000. The purchasing cost will be fully depreciated (to book value = 0) over the project life of 20 years using straight-line depreciation.

(2)The estimated terminal market value of the machineries is $3,000,000 (i.e., the machineries can be sold at $3,000,000 at the end of the project).

(3)The expansion is expected to increase sales by $22,000,000 per year(year 1-20). 25% of this sales increase is anticipated due to the demand for replacing the 205 Airliner that has been serving the companys existing airline company customers.

(4)The increase in direct production costs due to the expansion will be $8,000,000 per year. Additionally, the company will allocate an additional overhead cost of $900,000 per year to its expanded division for the 887 Airliner, while the companys total overhead costs will remain the same due to the downsizing of the companys existing divisions.

(5)The company spent $250,000 to train workers for the new machineries(up-front operating cost at t=0).

(6)The company needs an additional working capital of $2,500,000 at the beginning of the project. The company expects to recover 100% of this working capital investment at the end of the project.

(7)The companys corporate income tax rate is 21%.

(8)The project cost of capital is 12%.

-Cash flows at t = 0

-Cash flows during the life of the project (except for t = 20)

-Cash flows at t = 20

-Project IRR and NPV with your decisions