10.32 Quasar Tech Co. is investing $6 million in new machinery that will produce the next-generation routers. Sales to its customers will amount to $1,750,000 for the next three years and then increase to $2.4 million for three more years. The project is expected to last six years and cost the firm annually $898,620 (excluding depreciation). The machinery will be depreciated to zero by year 6 using the straight-line method. The company’s tax rate is 30 percent, and its cost of capital is 16 percent.
a. What is the payback period?
b. What is the average accounting return (ARR)?
c. Calculate the project NPV.
d. What is the IRR for the project?