Your firm, Country Furniture, Inc., is thinking about replacing equipment in its production facilities. In considering the replacement, you obtained the following information:

The expansion will require the company to purchase today (t = 0) $5 million of new equipment. An additional $200,000 in installation charges will be required. The equipment will be depreciated as MACRS 3-year property over the following four years at the following rates: t = 1 33% t = 2 45% t = 3 15% t = 4 7%

The expansion will require the company to increase its net operating working capital by $150,000 today (t = 0). This net operating working capital will be recovered at the end of the projects 5-year economic life.

The old equipment is fully depreciated (Book Value = $0) and can be sold for $45,000

The new equipment is expected to have a salvage value of $30,000 at the end of its 5-year economic life.

The companys operating costs, excluding depreciation, are expected to reflect a decrease of $75,000 per year for each year the new equipment is in operation.

The new equipment will increase the companys sales. The projected increases are as follows: Year 1: $3.0 million Year 2: 3.5 million Year 3: 2.5 million Year 4: 1.5 million Year 5: 1.0 million

The required return for the project is 10%. The companys tax rate is 40%.

b. What are the proposed project's Net Present Value (NPV) and Internal Rate of Return?