Your company has been doing well, reaching $1 million in earnings and is considered launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 700,000 units per year for 4$ per unit and variable and non labor costs will be 1.75 $per unit. Fixed costs include 550,000 per year. Production will end after year 4. New equipment costing $1.8 million will be required. The equipment will be depreciated to zero using the 5-year MACRS schedule. You plan to sell the equipment at the end of year 4 for 32% of the initial cost. Your current level of working capital is 300,000$. The new product will require the working capital to increase to a level of 390,000 immediately, then to 410,000$ in year 1, 395,000 in year 2, year 3 the level will be 360,000$and finally in year 4 the level will return to 310,000$. Your tax rate is 30%. The discount rate for this project is 12%. Do the investment appraisal for this project by calculating its NPV and IRR?

Requirements

1.You need to solve the case study using Excel

2. You need to comment on the investment appraisal for minimum of 50 words explaining the reason for accepting/rejecting the project.