Your company manufactures roller$-$skates. You are studying the possibility of selling a

new product with a revolutionary rolling system.

To start off the new project, you are able to use a piece of land that your company bought

$4$ years ago for $$1,250,000,$ and that is currently vacant. The company would need to spend

$$2,250,000$ on building a factory on the piece of land, as well as $$350,000$ on purchasing

new equipment. Some older equipment used for the current production could also be re$-$

purposed for the new project. Forgoing the use of the older equipment for the current

production would increase the cost of current production by $$25,000$ per year.

In addition, the project would also require a $$150,000$ investment in working capital,

amount that will be recovered at the end of the project.

Once started, the project is estimated to generate revenues of $$700,000$ per year and would

incur expenses of $$200,000$ per year for $7$ years. At the end of the $7$ years, the land, the

factory and the new equipment would be sold for $$1,000,000,$ $$1,550,000$ and $$0$ respec$-$

tively. The old equipment being repurposed is already fully depreciated and considered

worthless. The factory and the new equipment are to be depreciated with the straight line

depreciation method over $7$ years.

The tax rate is $30\%.$ The opportunity cost of capital for this kind of project is $14\%.$

Considering its NPV and IRR, is this project worth undertaking? Please show your calcu$-$

lations.