Assume Keurig Inc is evaluating whether or not to purchase a piece of equipment that will involve an initial outlay or cost of $1 million. Assume a production of a new product line will begin 6 months following installation and will yield the following estimated Operating Cash Flows per year for the following years listed in Table 2 below:
Table 2
Year 1 $30,000
Year 2 $120,000
Year 3 $410,000
Year 4 $500,000
Year 5 $600,000
Year 6 $450,000
Year 7 $400,000
In addition…
At the end of Year 7, the equipment will be sold for an after tax terminal value of $10,000.
Assume the wacc=12%
A) What is the Internal Rate of Return (IRR)? ___________
B) Would you accept or reject the project?______________
C) Explain why or why not______