Medi

$-$

Cal is considering a new service line. It requires a new machine that will cost $

$2$

$,$

$4$

$0$

$0$

$,$

$0$

$0$

$0$

$.$

$$The machine will be fully depreciated to a zero

$-$

book value on a straight

$-$

line basis over

$3$

$$years$.$ The project will generate $

$7$

$,$

$2$

$0$

$0$

$,$

$0$

$0$

$0$

$$in sales each year for

$3$

$$years$.$ Variable costs are

$7$

$5$

$\%$

$$of sales and fixed costs are $

$5$

$0$

$0$

$,$

$0$

$0$

$0$

$$per year for

$3$

$$years$.$ They will have $

$2$

$0$

$0$

$,$

$0$

$0$

$0$

$$annually in interest expenses from the financing. The initial investment in net working capital is $

$4$

$0$

$0$

$,$

$0$

$0$

$0$

$.$

$$No additional net working capital is needed for the project and no net working capital will be returned. The variable and fixed costs do not include the depreciation and the interest expenses. There is no horizon value. The tax rate is

$2$

$5$

$\%$

$.$

$$The cost of capital is

$8$

$\%$

$.$

$$

a

$.$

$$Find the net present value, internal rate of return, and payback period.

b

$.$

$$Using net present value, do they accept the project? Explain.