Queen Ltd is having a 5-year project which involves launching a new product. The project requires an investment of $2 million in fixed assets. The fixed assets will be depreciated in 5 years under a straight-line method according to regulations. Sales revenue in the first year is forecasted at $950,000 and expected to grow at 18% until the end of the project. Expenses account for approximately 50% of sales revenue. In addition, running the project will require an immediate investment (at the beginning of the first year) in working capital of $60,000. The amount of working capital will grow at 10% per year for two years and then remains constant until fully recovered in the last year of the project. The corporate tax rate is 25% and the required rate of return for the project is 15%. Requirements:
a. Compute the project's cash flows in each year (year 0 to year 5).
b. Compute NPV, IRR and payback period of the project.
c. Based on your computation in part b, assuming no further information is
provided, decide (with explanation) whether or not to accept the project.