Buckeye Books is considering opening a new production facility in Toledo, Ohio. The firm uses free cash flow discounted by the cost of capital. The...

Buckeye Books is considering opening a new production facility in Toledo, Ohio. The firm uses free cash flow discounted by the cost of capital. The firm has the following information:

The up-front cost of the facility at t=0 is $10 million. The facility will be depreciated on a straight line basis to 0 over 5 years.  (The facility will not be used again after the fifth year.)

 calculate the projects net present value and irr 

The company will operate the facility for 5 years. It can be sold for $3 million at t=5.

Interest expense will increase by $50,000/year with this project.

The firm spent $750,000 on a feasibility study a year and a half ago. The study concluded that opening a new facility would be profitable.

If the facility is opened, Buckeye will need additional inventory at t=0 of $2 million. Accounts payable will increase by $1 million at t=0. All working capital will be recovered at t=5.

If the facility is opened, it will increase sales by $7 million/year in year 1 and costs will increase by $3 million/year. Inflation is expected to be 4%/year for the life of the project. Inflation will not impact year 1 revenues and costs, but will impact revenues and costs in years 2-5.

The tax rate is 40%.

If the project is not done, the land on which the facility would be built will be sold for $5 million immediately.

Compute the cash flows for years 0, 1, 5 (You can compute the cash flows for years 2, 3, 4, also, if you wish.)  If you have computed the cash flows for all years 0-5, then you can find the IRR and MIRR.