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A five - year project will cost $ 2 , 0 0 0 , 0 0 0 to construct. This will be depreciated straight line

A five-year project will cost $2,000,000 to construct. This will be depreciated straight line to zero over the five-year life. The project is expected to generate annual sales of $2,500,000. It has annual variables costs of $1,000,000 and annual fixed costs of $600,000. The appropriate tax rate is 25 percent and the required rate of return on the project is 16 percent. Assume that a salvage company will pay $300,000(before taxes) for the assets at the end of year 5. The project also has an initial net working capital requirement of $150,000, which is fully recoverable when the project ends in year 5. Note that the project only depreciates the $2,000,000 initial cost. The salvage value is excluded from depreciation. What is the projects net present value (NPV)? Should the firm accept the project?

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