Fri Jul 10 T Question 2 Millie's Ice Cream is considering a proposal to start making its own milk chocolate hot fudge topping. The project would make use of an existing warehouse which is currently rented out to a neighboring firm. This year's rental charge on the warehouse is $100,000 and this number is expected to grow at 4% per year. In addition to using the warehouse the proposal envisages an investment in plant and equipment of $1.2 million. Depreciation is $120,000 per year. Millie's expects to terminate the project after eight years. As a financial consultant, you expect that Millie's can resell the plant and equipment then (i.e., in t = 8) for $400,000. The project requires an initial (t = 0) investment in working capital of $350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Assume the hot fudge sales do not impact other aspects of Millie's business. This year's sales of hot fudge are expected to generate $4.2 million and grow thereafter by 5% per year. Costs are expected to be 90% of sales. The corporate tax rate is 35% and the cost of capital is 12%. What is the NPV of Millie's project? Hint: Ask yourself if the sale of the plant and equipment in t = 8 is taxable