The Natural Gardener is considering converting an existing smallgreenhouse attached to its main store into a showroom for hot tubs.Currently house plants are displayed in the greenhouse and sold onconsignment from a local grower; sales of houseplants generate$5,000 per year “commission” to the Natural Gardener. It will cost$3,000 to convert the greenhouse into a hot tub showroom (newlighting and some pluming to display a running water model); thatcost can be depreciated equally over 3 years. The hot tubsupplier’s “program” requires the retailer to purchase and carry aninventory of 5 tubs at a cost of $3,000 per tub for a three yeartrial period, with the supplier repurchasing any tubs remaining atthe end of the three years for their cost. Assume when a tub issold, it is immediately replaced by another from the supplier.Further assume that the tubs are purchased from the supplier forcash and that retail sales are also for cash. The Natural Gardenermanager believes 6 hot tubs per year can be sold at a retail priceof $5,000 per tub.

a) If the sales forecast can be achieved and the income tax rateis 40%, what are the after-tax cash flows associated with thedecision to accept the three year program? (8 points)

b) What is the IRR of this project? (2 points)

c) If 10 percent is the cost of capital for Natural Gardener,what is the NPV associated with the decision to accept the threeyear program? (2 points) (Show NPV formula please)