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%

You continue your conversation.

It looks good, says Mary. Use this information from Luke and James to compute the cash flows for the project.

No problem, you say.

Then, compute NPV and IRR of the project using theExcel spreadsheetI sent earlier today, says Mary. Use the IRR financial function for the computation of IRR.

FIN 615 NPV and IRR calculations Cost of Capital Time/yr Cash flow Input here Discounted CF NPV PV factor IRR 10.00% 0 1 2 3 4 5 0 0 0 0 0 0 0 =cf1/((1+n)^1 =cf2/((1+n)^2)=cf3/((1+n)^3)=cf4/((1+n)^4)=cf5/((1+n)^5) 0.909090909 0.826446281 0.7513148009 0.6830134554 0.6209213231 Err:523