Your puzzle machine will cost you $1,400,000 and will be depreciated over five years. You expect that you should be able to sell the new machine for $1,200,000 at the end of year five. The puzzle, box, and outer sleeve cost $6.78 per puzzle to manufacture. Shipping to your headquarters in Utah will cost $0.35 per puzzle. Your new puzzle headquarters will be in Mapleton, Utah and consist of offices and a small warehouse space for order fulfillment. Each puzzle is expected to sell for $29.99 and customers cover all shipping costs. The company has a tax rate of 27%. Remember, taxes are only paid on gains. You will also need to invest $1,600,000 in inventory to be ready to go live. In a recent presentation to investors, you projected sales of 100,000 puzzles in year one, followed by annual growth of 32% in year two and year three and 20% in year four and five. At the end of year five, it is likely you will be able to sell the company for $6,100,000. The government two-year bond is trading at 2.6% while the five-year bond trades at 3.2%. Last year, the US equity markets rose by 20.5% which was the same as it has been for the last five years. Other toy companies that trade in public markets have a beta of approximately 1.6.

You recently issued a bond at $850 with a maturity of 15 years. The bond pays coupons semi-annually and has a coupon of 5% while current interest rates are 8%. There is a 3% flotation cost on your bonds. There are 1000 bonds outstanding. Your puzzle company has no preferred stock but its equity was raised by issuing common stock at $65 per share with a 4% flotation cost on a base of 100,000 shares. Calculate your puzzle companys NPV, IRR, and Payback Period. A spreadsheet has been created for your analysis, which you can download from Canvas. A similar spreadsheet, with the solutions, can also be downloaded from Canvas after you have made your own valiant effort.