Traid Winds Corporation, a firm in the 34 percent marginal tax bracket with a required rate of return or cost of capital of 13 percent, is considering a new project. This project involves the introduction of a new product. The project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. Given the information in the popup window, determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria.

Data of pop up window:

Cost of new plant and equipment

$14,800,000

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Shipping and installation costs

$600,000

Unit sales

YEAR

UNITS SOLD

1

65,000

2

110,000

3

110,000

4

75,000

5

65,000

Sales price per unit

$300/unit

in years 1 through 4,

$250/unit

in year 5

Variable cost per unit

$200/unit

Annual fixed costs

$750,000

per year in years 1-5

Working-capital requirements

There will be an initial working-capital requirement of $200,000 just to get production started. For each year, the total investment in net working capital will be equal to 15 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 and 2, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5.

Depreciation method

Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years.