The Duncan Corporation, a firm in the marginal tax bracket, with an required rate of return or discount rate, is considering a new project. This project involves the introduction of a new product. This product is expected to last years and then, because it is somewhat of a fad product, it will be terminated.

Cost of new plant and equipment:                                   $

Shipping and installation costs:                                          

Unit sales:

Year Units Sold

Sales price per unit:                                                            $unit in years and $unit in years and

Variable cost per unit:                                                        $unit throughout the five years

Annual fixed costs:                                                             $

There will be an initial working capital requirement of $ just to get production started. At the conclusion of the project, the plant and equipment can be sold for $ The plant and equipment will be depreciated over five years on a straightline basis to a zerosalvage value.

Required:

a Determine the payback period for the project.

b Determine the net present value of the project.

c Determine the internal rate of return of the project.

d Explain why you would or would not recommend the project.