Your company is considering an expansion into a new product area. The company has collected

the following information about the proposed product. $($Note: You may or may not need to use

all of this information, use only the information that is relevant.$)$

$$ The project has an anticipated economic life of $5$ years.

$$ The company will have to purchase a new machine to produce the product. The machine has

an up$-$front cost $($T $=0)$ of $$750,000.$ The machine will be fully depreciated using straight$-$line

depreciation over $5$ years to $$0.$ After five years, it$$s before$-$tax salvage value will equal

$$100,000.$

$$ If the company goes ahead with the project, it will have an effect on the company's net

working capital. At the outset, T $=0,$ inventory will increase by $$50,000$ and accounts

payable will increase by $$30,000.$ At T $=5,$ the net working capital will be recovered after the

project is completed.

$$ The project is expected to produce EBIT of $$200,000$ the first year $($T $=1),$ $$300,000$ the

second and third years $($T $=2$ and $3),$ $$200,000$ the fourth year $($T $=4),$ and $$150,000$ the final

year $($T $=5).$ These values already include operating costs that are expected to equal $50$

percent of sales revenue and depreciation expense.

$$ Because of synergies, the new project is expected to increase the after$-$tax cash flows of the

company's existing products by $$25,000$ a year $($T $=1,2,3,4,$ and $5)$ and this is considered to

be incremental to this particular project.

$$ The company's overall WACC is $12$ percent. However, the proposed project is less risky than

the average project, leading the firm to use a WACC of $10$ percent for this project.

$$ The company's tax rate is $21$ percent.

What free cash flows does this project generate?

What are the NPV and the IRR for this project?