An Nam Corp.

intends to import equipment line to produce product A with an initial investment of USD
200,000. Production capacity of the 100,000 products / year. The useful life of equipment is 5 years. At the
end of its useful life, the equipment would be sold at USD6,000 and the cost for salvage is USD300.

- The company estimates that the variable cost of production accounts for 60% of the selling price.

- Working capital: USD 50,000 spent in year 0. From year 1 to year 5, net working capital requirements
are expected to equal 10% of company’s sales.

- Fixed and annual selling prices are estimated as follows:

Year 1 2 3 4

Selling price (USD/product) 4 5 6 5

Selling products to the production capacity 80% 90% 90% 90%

Fixed cost (USD) 17,500 20,000 23,000 20,000

Tax rate is 30%. Cost of capital is 13%. The equipment is depreciated by straight line method.

a. What are the project cash flows?

b. Is this a good project for the company? Explain your answer by NPV, IRR.