ABC is considering the purchase of a $5,000 souffle maker which has a life of 5 years and will be depreciated to a remaining book value of $1,000.
The machine will produce 2000 souffles per year, with each costing $2 to make and priced at $4.
In order for the machine to work, an increase in net working capital of $1,000 is required at the beginning and it will be fully recovered at the end of year 5.
The used souffle maker can be expected to sell for $2,000 five years later.
Assume that the firm is profitable and the tax rate is 40%. Find the NPV and IRR for the project.