The following expenses and revenues have been estimated for a new project:

Revenues from sales = $4.1 10⁶ /yr

Cost of manufacturing (excluding depreciation) = $1.9 10⁶ /yr

Taxation rate = 40%

Fixed Capital Investment = $7.7 10⁶ (two payments of $5 10⁶ and $2.7 10⁶ at the end of years 1 and 2, respectively)

Start-up at the end of year 2

Working capital = $2 10⁶ at the end of year 2

Land cost = $0.8 10⁶ at the beginning of the project (time = 0)

Project life (for economic evaluation) = 10 yr after start-up

For this project, estimate the NPV of the project assuming an after-tax internal hurdle rate of 11% p.a., using the following depreciation schedules.

a. MACRS method for 5 years

b. Straight-line depreciation with an equipment life (for depreciation) of 9.5 years

Comment on the effect of discounting on the overall profitability of large capital projects.