Please Answer Number 2

1. Tangi Works, Inc. is evaluating an investment which will cost $500,000 and has an expected life of four years. Average investments in inventory and accounts receivable will be $40,000 and $200,000, respectively, while the average accounts payable balance will be $30,000. The expected before-tax salvage value of the equipment after four years use will be $100,000. The equipment will produce an annual revenue of $200,000 each year in years 1-2, and $350,000 in years 3 and 4.

All costs excluding depreciation will be 20% of revenue

Tax rate: 21%

Estimate the projects cash flows for the next four years.

2. Now assuming the following cash flows for the above project, calculate the projects payback period, NPV and IRR. The cost of capital is 12% and the required payback is three years. Indicate whether the project will be acceptable by each of the three techniques.

Year 0 1 2 3 4

Cash Flow -$800,000 $100,000 $200,000 $500,000 $500,000