We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project, says Mary. It is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm that indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.

That sounds good, you say.

Right," says Mary. "You can use a WACC of 10%for the computation of the NPV and comparison for IRR."

Ive got the information I need from Luke and James, you say. "Does this look right to you? Heres what they gave me, you say, as you hand a sheet of paper to Mary.

Lets look at this now while were together, she says.

The information you hand to Mary shows the following:

• Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year Project and equipment life: 5 years Sales: $25 million per year for five years Assume gross margin of 60% (exclusive of depreciation) Depreciation: Straight-line for tax purposes Selling, general, and administrative expenses: 10% of sales
• Tax rate: 35