Xtra Mechanical, Inc. is a manufacturer of machine parts with locations in the United States. It is considering entering into a ten year supply agreement with a customer where it will supply certain parts to the customer for their products.

The project will require Xtra to purchase a new machine and the cost of the machine is $8,500,000. At the end of the project, the machine is expected to be sold in the used market for 20% of the original cost before paying taxes. The five year MACRS depreciation will be used for tax purposes. The depreciate rates are shown below.

There is an initial working capital investment of $15,000 and annual incremental working capital investments of $15,000 will also be required. We assume that all the money tied up in the net working capital account will be recovered by the end of the project.

Revenues from the contract per year are shown below. Cost of goods sold is expected to be 50% of revenues. In addition to cost of goods sold, the project will also require additional operating costs of 7.0% of revenues per year.

The company's average tax rate is 23% and the marginal rate is 25%. Given the risk level of this project Xtra requires a rate of return 1% above its weighted cost of capital. Its weighted cost of capital is 10%.

Please calculate the net present value (NPV) and internal rate of return (IRR). Should the project be accepted or rejected and why?

A cash flow table is provided below to help you calculate cash flow from assets (CFFA) in each year. Please fill in the gray areas.