Your uncle owns a clothing store. Because the business is down, he is considering replacing the tie department with a new sportswear department. He hired an financial advisor to estimate the cash flows of the new department. After six months of hardwork, the advisor came up with the calculations in the left.

The discount rate is 12%, and there are no additional taxes. Thus, the advisor concluded that the NPV is -8,667.

Your surprised uncle ask you to go over the calculation. Is the advisor correct? If not, what are the NPV and IRR of the project?

Discount rate	12%
Rearranging the shop	-40,000
Loss of business during renovation	-15,000
Payment to the financial advisor	-12,000
Total	-67,000
Annual earnings from the sport department	75,000
Loss of earnings from the tie department	-20,000
Loss of earnings from other departments	-15,000
Additional worker for the sports department	-18,000
Municipality Tax (20m* $750per m)	-15,000
Total	7,000
NPV	-8,667