Finc 5810

10. Barbara Corporation is considering a new factory. This factory requires an initial outlay of $4,850,000 million to be paid immediately. The factory will last for fifteen additional years, after which it can be sold for a salvage value of $1,000,000. Sales will be $600,000 during the first year of operation and will grow at a rate of 5 percent a year after that. Variable costs will be 28 percent of sales. Fixed cash costs are $135,000 in the first year and will then grow at a rate of 8% per year. All sales and costs are in cash and there is no depreciation or taxes paid to the government (we will model these in chapter 8). Assume cash flows occur at year-end. At an 8 percent required return - the net present value of this project is