In December 2006, Bob Prescott, the controller for the BlueRidge Mill, was considering the addition of a new on-site longwoodwoodyard. The addition would have two primary benefits: toeliminate the need to purchase shortwood from an outside supplierand create the opportunity to sell shortwood on the open market asa new market for Worldwide Paper Company (WPC). The new woodyardwould allow the Blue Ridge Mill not only to reduce its operatingcosts but also to increase its revenues. The proposed woodyardutilized new technology that allowed tree-length logs, calledlongwood, to be processed directly, whereas the current processrequired shortwood, which had to be purchased from the ShenandoahMill. This nearby mill, owned by a competitor, had excess capacitythat allowed it to produce more shortwood than it needed for itsown pulp production. The excess was sold to several differentmills, including the Blue Ridge Mill. Thus adding the new longwoodequipment would mean that Prescott would no longer need to use theShenandoah Mill as a shortwood supplier and that the Blue RidgeMill would instead compete with the Shenandoah Mill by selling onthe shortwood market. The question for Prescott was whether theseexpected benefits were enough to justify the $18 million capitaloutlay plus the incremental investment in working capital over thesix-year life of the investment. Construction would start within afew months, and the investment outlay would be spent over twocalendar years: $16 million in 2007 and the remaining $2 million in2008. When the new woodyard began operating in 2008, it wouldsignificantly reduce the operating costs of the mill. Theseoperating savings would come mostly from the difference in the costof producing shortwood on-site versus buying it on the open marketand were estimated to be $2.0 million for 2008 and $3.5 million peryear thereafter. Prescott also planned on taking advantage of theexcess production capacity afforded by the new facility by sellingshortwood on the open market as soon as possible. For 2008, heexpected to show revenues of approximately $4 million, as thefacility came on-line and began to break into the new market. Heexpected shortwood sales to reach $10 million in 2009 and continueat the $10 million level through 2013. Prescott estimated that thecost of goods sold (before including depreciation expenses) wouldbe 75% of revenues, and SG&A would be 5% of revenues. Inaddition to the capital outlay of $18 million, the increasedrevenues would necessitate higher levels of inventories andaccounts receivable. The total working capital would average 10% ofannual revenues. Therefore the amount of working capital investmenteach year would equal 10% of incremental sales for the year. At theend of the life of the equipment, in 2013, all the net workingcapital on the books would be recoverable at cost, whereas only 10%or $1.8 million (before taxes) of the capital investment would berecoverable. Taxes would be paid at a 40% rate, and depreciationwas calculated on a straight-line basis over the six-year life,with zero salvage. WPC accountants had told Prescott thatdepreciation charges could not begin until 2008, when all the $18million had been spent, and the machinery was in service. You havebeen approached by Prescott with a request to evaluate the project.If the required rate of return is 9.65%, what are the paybackperiod, profitability index, net present value, and internal rateof return for the investment project? Should WPC implement theinvestment project?