2. FITCO Inc. is a Pharmaceutical Company which is considering investing in a new equipment for the production of pain-reliever medicine for individuals who suffer from cardio vascular diseases. The new equipment will costs $2,000,000, and an additional $100,000 is needed for installation. The equipment which falls into the MACRS 5-yr class, would be sold after five years for $150,000. The equipment will generate additional annual revenues of $965,000, and will have annual operating expenses of $300,000. An inventory investment of $60,000 is required during the life of the project. FITCO is in the 30 percent tax bracket, and has the same risk as the firmAc€?cs existing assets. Its existing cost of capital is 15 percent. a) Calculate the initial outlay of the project. [no units and points] (2 points) b) Calculate the annual after-tax operating cash flow for Years 1 -5. [no units and points] (5 points) c) Determine the terminal year non-operating cash flow in year 5. [no units and points] (4 points) d) What is the project NPV? [rounded to the nearest hundred] (3 marks) e) What is the estimated Internal Rate of Return (IRR) of the project? [up to two decimal places] (2 marks) f) Should the project be accepted based on the IRR criterion? (1 marks)

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