This project requires an initial investment of $2,000,000 in equipment which will cost an additional $250,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $100,000. The project will last 6 years at which time the market value for the equipment will be $30,000. The project will project a product with a sales price of $120.00 per unit and the variable cost per unit will be $65.00. The fixed costs would be $500,000 per year. Because this project is very different to current products sold by the business, management has imposed a 2 percentage point premium above its current WACC as the valuation hurdle it must meet or surpass.

Years	2014	2015	2016	2017	2018	2019
Forecasted Units Sold	21,000	55,000	44,000	28,000	25,000	11,000

Modified Accelerated Cost Recovery System (MACRS)

Ownership Year	5-Year Investment Class Depreciation Schedule
1	20%
2	32%
3	19%
4	12%
5	11%
6	6%
Total	100%

a) Net Present Value of Discounted Cash Flow (use WACC= 11.49% as the discount rate).

b) Internal Rate of Return

c) Payback Period

d) Profitability Index (use WACC= 11.49% for discount rate).

Initial Project Scenario Inflation Rate Tax Rate Price Variable Cost Units sold Depreciation Rate Required Return Salvage Value Initial Cost Installation Cost Increase in NWC Fixed Cost $ 2,000,000 S 130,000 S 250,000 0 1 2 3 5 Sales Variable Cost Fixed Cost EBITDA Depreciation EBIT Tax Expense Net Income Page 1 Operating Cash Flow Non-operating Cash Flow Net Working Capital Year 0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Internal Rate of Return Net Present Value Payback Period Profitability Index