What is the npv of the project

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Reference no: EM13556142

The G&P Corporation is thinking of buying a plant to make packets of laundry detergent. The current date is 12/31/2000. The plant costs $10M. It will be ready for production immediately and is expected to last for three years. At the end of its life the salvage value will be $3M. The plant will produce 1M packets of laundry detergent during each year. The price of each packet is currently (i.e., on 12/31/2000) $5 and is expected to increase at 4% per year.

The raw materials current cost $1 per packet and are expected to increase at 3 percent per year. The total labor costs to run the plant are currently $200,000 per year and these are expected to remain constant.

If the plant is bought, the extra head office expenses are expected to be $100,000 in the first year, $150,000 in the second year, and $175,000 in the third year. The firm has a tax rate of 35% and uses straight-line depreciation to depreciate to a value of $3M.

The firm's discount rate is 10.82%. What is the NPV of the project?

Reference no: EM13556142

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