Oxbow Inc. is contemplating a new venture project and has done a detailed five year cash flow estimate with the following result ($000):

The firm€™s cost of capital is 12%.
a. Use a financial calculator to compute the project€™s NPV and IRR, and make the appropriate recommendation to management. (If you don€™t have a financial calculator just calculate NPV.)
b. Charles Dunn, Oxbow€™s Marketing VP, has argued that it€™s unreasonable to exclude cash flows past year five from the analysis. Calculate the project€™s terminal value assuming year five€™s cash flow goes on forever. Recalculate the project€™s NPV and IRR under that Charles€™ assumption.
c. Charles further argues that the most appropriate assumption is that cash flows beyond the fifth year incorporate a three percent long run growth rate. Calculate the terminal value, NPV, and IRR implied by this assumption.
d. Comment on the results implied by the use of aggressive terminal value assumptions.

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