You analyze a proposal to produce and sell a new car. You believe your firm could sell the car for the next ten years, after which it will become outdated and the firm would need to bring to the market a new generation of cars.

To assemble the car, the firm would need specialized machinery that costs $2,270,000, and this cost will be depreciated to zero using the straight-line method

over ten years. The machinery would have a salvage value of about $550,000 at the end of the project (i.e., it could be sold for that price or used in another project).

Note: Cost is depreciated to zero irrespective of the fact that the equipment could be sold at the end of year 10. By salvage value here we simply mean the expected

selling price of the equipment at the end of year 10. The fixed costs of operating the assembly line (predominantly rent) would be $645,000 in the first year, and they are expected to increase by 2% per year (due to rent increases specified in the lease). The components that go into each car are estimated to cost $360.

You project sales to be 2500 units in the first year. You expect the number of units the firm could sell to grow by 10% each year in years 2 through 7,

and then decline 20% in year 8, and further decline 20% in year 9, remaining flat in year 10. The firm intends to set the price of the units to be $690.

Net working capital is 5% of revenues, and changes in net working capital are established ahead of the revenues (e.g., the increase in net working capital at time zero is 5% of expected revenues in Year 1, and the change in net working capital at time one is 5% of the expected change in revenues from Year 1 to Year 2). All net working capital is recovered at the end of year 10.

The relevant tax rate for your firm is 24%.

a). What is the NPV of this project if the firm's required return is 12.3%?

b). What is the IRR of this project?

c). Should the firm produce and sell the new car?

Please solve in excel and post formula text. Thank you!