Firm Z has invested $5 million in marketing for its new product Minish, which will be on the market for 5 years. Revenues are projected to be $50 million annually with $20 million in expenses each year. The firm spends $15 million on equipment that will be depreciated to $0 over 5 years using MACRS. It will also use $4 million of fully depreciated existing equipment. Minish will not require incremental cash, inventory, or payables which will be 15% of annual COGS between years 1-4 and receivables will be 15% of annual sales, all settling at year end 5.

1. Firm Z has invested $5 million in marketing campaign to assess the demand for the product
Minish. This product will be in the market next year and will last five years. Revenues are
projected to be $50 million per year along with expenses of $20 million. The firm spends $15
million immediately on equipment that will be depreciated using MACRS depreciation to zero.
Additionally, it will use some fully depreciated existing equipment that has a market value of $4
million. Finally, Minish will have no incremental cash or inventory requirements (products will be
shipped directly from the contract manufacturer to customers). But, receivables are expected to
account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods
sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at
the end of year 5. Based on this information and WACC in the first part of the question, find the
NPV of the project. Identify the IRR of the project. Draw NPV vs r graph of the project. Will you
accpet this project? Why? Please show your work. [30 points]