Happy Holiday Inc (HHI) is considering a new capital budgeting project that will last for three years.The initial investment outlay for project equipment is expected to be $120,000. The equipment will be straight-line depreciated down to zero book value over the three-year period. The company anticipates it can sell the asset for $60,000 when the project is liquidated at the end of the third year.

The project requires an initial investment in Net Working Capital of $10,000 and another investment in networking capital in year 2 of $10,000.

The project also requires an additional investment in fixed assets during year 1, in the amount of $15,000.

HHI's cost of capital is 10% and the project does not have a distinct risk profile.

HHI's tax rate is 35%.Based on extensive research, analysts have prepared the below incremental revenues.

The gross margin is estimated to 50% of sales, and it is assumed to be the similar to those for other projects HHI.