You are provided with the projected income statements for a project:

€¢ The tax rate is 40%.
€¢ The project required an initial investment of $15,000 and an additional investment of $2,000 at the end of year 2.
€¢ The working capital is anticipated to be 10% of revenues, and the working capital investment has to be made at the beginning of each period.
a. Estimate the free cash flow to the firm for each of the four years.
b. Estimate the payback period for investors in the firm.
c. Estimate the NPV to investors in the firm, if the cost of capital is 12%. Would you accept the project?
d. Estimate the IRR to investors in the firm. Would you accept the project?

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Year 2 $10,000 $11,000 $12,000 $13,000 - Cost of goods sold $4,000 $4,400 $4,800 $5,200 $4,000 $3,000 $2,000 $1,000 $2,000 $3,600 $5,200 $6,800 Revenues Depreciation - EBIT