Exercise #2. You have been asked to evaluate a proposed investment in a new equipment to produce toys with the cost of $ 400,000, shipping costs of $ 10,000 and installation costs of $10,000 for the new equipment. The equipment has life of 5 years and may be sold for $ 50,000 in the sixth year. The new business will generate annual revenue of $ 500,000, material costs will be 40% of revenues, other costs without depreciation will be $ 50,000 in the first year and they will increase by 3% p.a. afterwards. There will be additional investment in the working capital (Accounts Receivable with DSO Ratio of 30 days, calculated using Sales; and Inventory with DII of 30 days, calculate using the Materials Expense) that will be recovered in the sixth year. Calculate project's NPV. Should the project be accepted if company's WACC is 12%? Assume 5-year asset class, 20% income tax; Accounts Receivable shows up in Year 1 cash flow, but Inventory - in Year 0