The manager for Blooper Industries has the following information about a new product proposal. The product, Product-X, already undergone market research tests for a cost of $5 million, is seen to have good potentials. As a result, the manager has requested and received further information, mostly estimates, about Product X, as follows: 1. Product X's life is expected to be five years. 2. It requires an initial cash investment outlay of $10 million, depreciated on a straight-line basis over the next five years. Salvage value at the end of year five is zero. 3. The project will require Blooper to invest $2 million in working capital in year zero, which can be recovered fully at the end of project (year 5). 4. The firm's marginal tax rate is 40 percent; the opportunity cost of capital is 16 percent. 5. Cash revenues and cash operating expenses for the next five years are expected to be Year 1 Year 2 Year 3 Year 4 Year 5 Cash revenues $15,000,000 $16,500,000 $18,150,000 $19,965,000 $21,962,000 Cash operating exp. 10,000,000 10,500,000 11,025,000 11,576,000 12,155,000

5. Rework the problem using the IRR, assuming for depreciation purposes this project falls into the three-year MACRS class the accelerated method specified by the IRS. Under the MACRS: 33% written off in yr. 1; 45% in year 2; 15% in year 3; and 7% in year 4 year.