To be able to analyze the project, we need to calculate the project’s NPV, IRR, MIRR, Payback Period, and Profitability Index.

Since net working capital is built up ahead of sales, the initial cash flow depends in part on this cash outflow. So, we will begin by calculating sales. Each year, the company will sell 600,000 tons under contract, and the rest on the spot market. The total sales revenue is the price per ton under contract times 600,000 tons, plus the spot market sales times the spot market price. The sales per year will be:

| Year | | 1 | 2 | 3 | 4 | Contract | $ 20,000,000 | $ 20,000,000 | $ 20,000,000 | $ 20,000,000 | Spot | $ 19,720,000 | $ 22,620,000 | $ 25,520,000 | $ 18,560,000 | Total sales | $ 39,720,000 | $ 42,620,000 | $ 45,520,000 | $ 38,560,000 | Ton | 740,000 | 790,000 | 840,000 | 720,000 |

The current after-tax value of the land is an opportunity cost. The initial outlay for net working capital is the percentage required net working capital times Year 1 sales, or:

Initial net working capital = .05($39,720,000) = $198000

So, the cash flow today is:

Equipment –$34,000,000

Land –6,200,000

NWC –1,980,000

Total –$40,2000,000

Now we can calculate the OCF each year. The OCF is: | Year | | | 1 | 2 | 3 | 4 | 5 | 6 | Annual revenue | 39,720,000 | 42,620,000 | 45,520,000 | 38,560,000 | | | variable cost@26/ton | 19,240,000 | 20,540,000 | 21,840,000 | 18,720,000 | | | Fixed cost | 3,800,000 | 3,800,000 | 3,800,000 | 3,800,000 | 5,000,000 | 6,000,000 | Depreciation | 4,858,600 | 7,646,600 | 5,946,600 | 4,399,600 | | | EBIT |