Reference no: EM132761931

Assume that your company is considering a 4-year project and that the proposed project has the following features:

• Projected sales are: Year 1 = $5,000,000; Year 2 = $8,000,000; Year 3 = $8,000,000; and Year 4 = $5,000,000
• Fixed costs will be $300,000 each year.
• Variable costs will be equal to 60 percent of sales.
• The project will have an initial asset cost of $3,000,000 plus an additional $450,000 for shipping and handling.
• The assets will be depreciated (don't forget shipping) using MACRS and a 3-year class life (therefore, it will be depreciated over 4 years) and the depreciation rates for Years 1 through 4 are: 33%; 45%; 15%, and 7%.
• The company expects additional interest expense to be $50,000 in each of Years 1 through 4.
• The company will need to increase its inventories by $800,000 at Year 0, and its accounts payable will also rise by $300,000 at Year 0. This net operating working capital will be recovered at the end of the project's life, Year 4.
• The company believes that it will be able to sell the assets for $250,000 at Year 4, which will result in a gain on the sale of capital assets, since the book value of the assets will be zero.
• The company's tax rate is 40 percent.
• The appropriate risk-adjusted discount rate (WACC) for this project is 14 percent.

 Given this data, determine the project's net present value (NPV).