You are analyst of a company and required to provide recommendation on new project.

$*$ Show all working

The R&D cost done is $$100$ million.

Product can be put of market beginning of next year $($Year $1)$

and company expect it to stay on market for $5$ years.$($from year $1-$year $5)$

The Intial Investment occurs immediatedly $($year $0)$ and operation cash flows at beginning of next year. $($Year $1)$

Company must Intially invest $ $10$ million in production equipment. This quipment can be sold at $ $6$ million at the end of year $5.$

Company except to Sale for $ $100$ per unit, variable cost is $$55.$

Marketing and Advertising cost is $$30$ million in the first year.

Both Selling and cost $($variable and marketing$)$ are expected to increase at the inflation rate in the subsequent years. $($year$2-5)$

Corporate rate is $43\mathrm{.}5\%$ and Inflation rate $4\mathrm{.}75\%$ constant over the life of Project.

Floowing Sales Target are First year$-50$ Million,Second year $40$ Million and $30$ Million for year $3-5.$

Equipments are depreciated in Straight Line method over $5$ Years to Zero balance.

The Immediate initial working capital requirement is $$10$ million in year $0$ and at the end of year$5,$ company will get all working capital back.

Assume $10\%$ discount rate is appropriate.

Questions:$-$

$1$ a$)$ Calculate the incremental free cash flow during the project$$s life $($starting from Year $0$ to Year $4).$ Show workings.

b$)$ Calculate the NPV$,$ payback period and IRR of the project. Should the project be accepted based on NPV rule? Show workings and explain your answer$($s$).$