After spending $3 million on research. The project requires an initial investment in plant and equipment of $6 million. This investment will be depreciated straight-line over five years to a value of zero, but, when the project comes to an end in five years, the equipment can in fact be sold for $500,000. The firm believes that working capital at each date must be maintained at 10% of next year's forecasted sales. Production costs are estimated at $1.50 per item and the item will be sold for $4 each. (There are no marketing expenses.) Sales forecasts are given in the following table. The firm pays tax at 35% and the required return on the project is 12%.
Year: 0 1 2 3 4 5
Sales (millions of traps) 0 .5 .6 1.0 1.0 .6
What is the project Modified Pay back period?
What is the project NPV?
What is the project IRR?
What is the project PI?
Should the project be accepted and what method did you base your judgment?