Determine the project npv

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Needle and Thread Inc. is considering expanding one of its production facilities to build a new line of sewing kits. The project would require a $9,000,000 capital investment and will be equally depreciated (straight-line) over its 3 year life. They believe they can salvage $1,200,000 for the equipment at the end of the project.

Incremental sales are expected to be $10,000,000 annually for the 3 year period with cash operating expenses of 42% of sales. The company would also have to commit initial working capital to the project of $1,000,000. The company is subject to a marginal tax rate of 36% and investors require a 10% return on projects with a similar risk.

Determine the project's NPV. Should the company pursue this investment opportunity?

Reference no: EM133062704

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