Mills Mining is considering an expansion project.  To date they have spent $75,000 investigating the viability of the project and have decided to proceed. The proposed project will cost $500,000 in addition to the $75,000 that was spent on the feasibility study. The project will be depreciated over a 3 year MACRS class life. Please show work.

                                        MACRS

                                    Depreciation

Year                               Rates                 

  1                                    0.33

  2                                    0.45

  3                                    0.15

  4                                    0.07

If the project is undertaken the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000.  The company will realize an additional $600,000 in sales over each of the next four years. The company's operating costs (not including depreciation) will increase by $400,000 a year. The company's tax rate is 40%. At t = 3, the project's economic life is complete, but it will have a salvage value (before-tax) of $50,000 after three years. The project's WACC is 10%.

a) What is the project's net present value (NPV)? What is the IRR?

b) Should the project be accepted? Why or why not? (i.e. Explain what your numerical answer means.)