Question 4 (20 points)

I. PolyU Ltd. is considering a project. The equipment required will cost $150,000 and will be depreciated to zero over its 5-year life. The market value of the equipment will be $30,000 five years later. The estimated revenue is $60,000 a year and total variable cost is $15,000 a year. The fixed cost will be $10,000 a year. The project will require $10,000 of initial net working capital, which is recoverable at the end of the project. The discount rate is 15 percent and the tax rate is 20 percent.

a) Compute theproject's annualOCF.

b) Compute the project's NPV.

c) Compute the payback period and PI of this project.

d) What is the NPV breakeven level of annual revenue?

e) If the annual revenueincreases by $1, by how much the project's NPV willincrease?