Reference no: EM131924587

Blue Note Jazz Productions has decided to cash in on the country craze by starting a subsidiary that will promote concerts by "Country Jazz" artists for the next three years. The country music boom is expected to subside by this time and the subsidiary will be folded. Blue Note expects that average ticket prices will be $35 and that ticket sales for the three years will be 300,000 tickets per year. Fixed cost each year are expected to be $3,000,000 and variable costs are expected to be 25% of sales. The subsidiary will need $4,000,000 in new equipment to start up and requires a $300,000 investment in working capital. The $4,000,000 in equipment will be depreciated straight-line over five years to a zero salvage value, but will be sold at the end of three years for an estimated $1,500,000. The firm's marginal tax rate is 40%. What is the NPV of this new investment if the firm's required rate of return is 12%? What is the IRR? Should the project be accepted?