Metal Winds Ltd is considering a new project that involves the introduction of a new technology for developing small-sized wind mills. Given the uncertain future of this particular technology, it has been decided to base the analysis on a duration of 5 years, and to assume no final value of the equipment.

Metal Winds Ltd expects to earn an 8 percent rate of return, and to pay a 28 percent tax rate. Given the following information, determine the free cash flows associated with the project, the project’s net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria.

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Cost of new plant and equipment Shipping and installation costs UNIT SALES Sales price per unit Variable cost per unit Annual fixed costs Working-capital requirements Depreciation method 18,800,000 200,000 YEAR 1 2 3 4 5 UNITS SOLD 70,000 120,000 120,000 80,000 70,000 300/unit in years 1 through 4, 250/unit in year 5 170/unit 900,000 per year in years 1-5 There will be an initial working-capital requirement of 200,000 just to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year, and will be made at the beginning of the year. Thus, the investment in working capital will increase during years 1 and 2, then decrease in year 4. Finally, all working capital is liqui- dated at the termination of the project at the end of year 5. Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years.