Fragrances Corporation is an international manufacturer of fragrances for women. Management is considering expanding the product line to mens fragrances.

From the best estimates of the marketing and production managers, annual cash sales for this new line are 900,000 units at $100 per unit, cash variable cost is $70 per unit, and cash fixed costs are $20,000,000 per year. The investment project requires $32,000,000 of cash outflow and has a project life of 9 years. At the end of the 9-year useful life, there will be a residual value of $10,000,000. It is expected that there will need to be an increase in working capital of $8,000,000.

The required rate of return is 10%. Fragrances Corporation has a tax rate of 15% and a CCA rate of 20%.

Requirement

1. Calculate the NPV of the investment proposal.