Mills Mining is considering an expansion project. To date, they have spent $75,000 investigating the viability of the project and have decided to proceed. The proposed project will cost $500,000 in addition to the $75,000 that was spent on the feasibility study. The project will be depreciated over a 3-year MACRS class life.

MACRS Depreciation
Year	Rates
1	0.33
2	0.45
3	0.15
4	0.07

If the project is undertaken the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. The company will realize an additional $600,000 in sales over each of the next three years. The company's operating costs (not including depreciation) will increase by $400,000 a year. The company's tax rate is 40%. At t = 3, the project's economic life is complete, but it will have a salvage value (before-tax) of $50,000 after three years. The project's WACC is 10%.

a) What is the project's net present value (NPV)? What is the IRR?

Answer rating: 100% (QA)

Feasability Cost 75000 ... View the full answer