1.A juice manufacturer conducted a marketing study three years ago to determine the consumers preferences for different types of juices including organic juices. This study was very extensive and detrimental in their decision to start a new organic juice division today. It cost them $1,000,000 to perform this study.

This company is considering introducing organic juices. The company will add a new assembly line in order to produce the organic juices separate from their existing assembly line for regular non-organic juices.

The project has an anticipated life of 4 years.

The new assembly line has a cost of $1,500,000. It will require $500,000 to customize it to the new specifications for organic production, and $100,000 for transportation and shipping to the company's plant.

The new machine falls into 5-years MACRS category (20%, 32%, 19.2%, 11.52% and 5.76%).

The organic juice production will require inventories to increase by $1,000,000 at time 0; In addition, accounts payables and accruals will increase by $450,000 and $150,000 respectively.

The organic juice is expected to generate sales revenue of $700,000 million the first year. The revenue is expected to increase by $300,000 every year. Each year the operating costs (excluding depreciation) are expected to equal 50% of sales revenue.

In order to do this expansion, the company will borrow $3,000,000. The annual interest expense on this borrowing $400,000.

The organic juice is expected to decrease the company's existing non-organic juice sale by $350,000 per year before tax basis.

The company can sell the new machine at the end of 4 years for $50,000 in the market.The company's cost of capital is 12%. The company's tax rate is 40%.

What is the initial investment CF0?