You are evaluating a project that requires an immediate investment of $2,100 in machinery, which has a useful life of 3 years and will be depreciated according to a straight-line depreciation method towards a salvage value of $0. At the end of its useful life, the equipment will be sold for $100. Aside from the machinery, the project requires an initial investment of $100 in working capital, half of which will be recovered at the end of the projects life.

To assess the impact of the new project, the company conducted a feasibility study one year ago. The study cost $50. According to the study, the new project will increase after-tax profit from existing products by $100 per year, starting in year 1.

Finally, your accountant, who has been working for the company for 5 years, estimated that if the project is not accepted, the company could lease its facilities for $150 per year, starting in year 1. The accountants salary is $100 per year and will increase to $110 starting in year 1 if the project is accepted because she will have to work overtime on the new project.

Other details for the project are provided below:

	Year 1	Year 2	Year 3
Revenues	3,000	3,000	3,000
Production Costs	700	700	700

Project payoffs occur at the end of the year, the discount rate is 15%, and the tax rate is 30%.

i) Compute the NPV of project in two different ways: using the built-in Excel function and by discounting each free-cashflow separately.

ii) Compute the IRR of the project using the built-in Excel function. In a separate cell, write down the NPV equation with the unknown IRR as the discount rate.

iii) Should the project be accepted?

iv) Show that if we use the IRR as a discount rate, the NPV is zero.