Problem: Sam has requested that you (1) identify all of the cashflows for this project, (2) calculate the project's NPV and IRR,and (3) provide your recommendation regarding whether the projectshould be accepted or rejected. The details of your cash-flowprojections should be clearly presented. Show all work.

ABC Company is examining a new capital-investment proposal thatwould greatly increase the production of diapers. The proposalinvolves an investment in some machines that would increase thefirm's efficiency at producing and preparing for export thetop-quality diapers for which the region has become well-known. Thepurchase price of this machinery is $840,000 and installation costswould total $60,000. The equipment would have a useful life of 5years and, for tax purposes, depreciation charges would beaccording to the 7-year-asset MACRS schedule. The machinery costand the installation costs should be capitalized at t=0 and fullydepreciated using the MACRS schedule. Management expects themachinery to be sold for a scrap value of $210,790 at the end ofyear 5. Ramon Rodriguez, the firm's accountant, pointed out thatthe portion of the factory that would house this new equipmentmachinery underwent a major 'renovation' 15 months ago with a totalcost of $105,200. Because the project would not have been feasiblewithout the renovation, Ramon suggests that the costs of therenovation should be allocated to the project as one of its initialexpenses. Interest charges associated with this investment’sfinancing have been estimated at approximately $70,000 per year,for each year of the project's estimated useful life. Theincremental sales (revenues) projections for this investment areshown near the end of this problem statement. Variable operatingcosts, excluding depreciation, are projected to be 40% of same-yearsales. Incremental fixed costs (for maintenance, etc.) areprojected to be $25,000 in the first year. For each of theremaining years of operation, this fixed-cost component isprojected to increase by 2% per year. If the new machinery ispurchased, some of ABC Company’s Net Working Capital (NWC) accountswill be affected. The schedule near the end of the problemstatement shows balances for Accounts Receivable, Inventory, andAccounts Payable across the project’s life. Of course, you’ll needto use this information to build the NWC Tracker, which in turnfeeds into the ΔNet Working Capital term in the cash-flowworksheet. The Chief Financial Officer of ABC Company, Sam Sand,requests your assistance in preparing an analysis of the net cashflow projections for the proposed investment. Sam believes that thesystematic risk of this project is similar to the averagesystematic risk of other ABC projects. The firm-level requiredreturn (also called “hurdle rate” in business lingo) is 10%/year.Sam also indicates that 30% is the appropriate tax rate for thisentire analysis. You also have the following information: Salesprojections are these for years 1-5: $300,000, $420,000, $510,000,$600,000, and $480,000. The MACRS depreciation schedule for a7-year asset is as follows: year 1: 14.29%; year 2: 24.49%; year 3:17.49%; year 4: 12.49%; year 5: 8.93%; year 6: 8.92%; year 7:8.93%; and year 8: 4.46%. Next, here is the schedule for thevarious working-capital accounts that will be affected if theproject is undertaken:

time	0	1	2	3	4	5
Accts. Receivable	0	27000	39000	45000	51000	0
Inventory	33000	45000	48000	60000	45000	0
Accounts Payable	21000	25200	24600	30000	16800	0