You run a mail-order firm, selling upscale clothing. You are considering replacing your manual ordering system with a computerized system, to make your operations more efficient and to increase sales. The computerized system will cost $10 million to install, and $500,000 to operate each year. The system is expected to last ten years, and will have no salvage value at the end of the period. You are planning to depreciate the equipment to 0 using a straight-line depreciation method. The computerized system is expected to double annual revenues from $5 million to $10 million for the next ten years. The costs of goods sold is 50% of revenues. The tax rate is 40%. As a result of the computerized system, the firm will be able to cut its inventory by $500,000 immediately. There is no other change in any other component of working capital in any other year. The discount rate is 8%.

Based on this information, answer the following questions:

(a) What is your expected cash flow at time t = 0?

(b) What is the expected incremental annual cash flow in years 110.(Note: Cash flow in each year 110 is the same)

(c) What is the NPV of this project