a.

Investment in machinery and equipment

$(6,200,000)

Investment in working capital

(1,152,000)

Annual cash inflows, by year:

   2010 = $1,920,000 * 0.9091

1,745,472

   2011 =   3,456,000 * 0.8264

2,856,038

   2012 =   1,632,000 * 0.7513

1,226,122

Salvage value = $960,000 * 0.7513 ...

721,248

Release of working capital = $1,152,000 * 0.7513.

      865,498

Net present value

$      62,378

b.

Because the net present value is positive, the internal rate of return will be higher than the cost of capital.