Hermione, is an entrepreneur that opened a pizza restaurant five years ago. She is considering investing to expand her operations. The property next door is for sale, so she is evaluating whether she should purchase that property. Hermione has hired you to help her with the financial analysis of this potential expansion project. As youre putting your 10-year projections together, you estimate the following:

The up-front cost of the new building, construction, and kitchen remodeling will be $5,550,000, and will take approximately one year. You estimate this can be depreciated over the first 5 years, using the following accelerated annual depreciation schedule: 35%, 30%, 20%, 10%, and 5%. Year 1 will have a sales reduction of $850,000 relative to not doing the expansion. Years 2 through 10 will have an increase in sales of $900,000 in year 2, growing by 8% per year. Costs will increase by $25,000 in year 2, growing by 5% per year. NWC investment of $350,000 today (recovered at the end). Salvage value of $1,750,000 at the end. Tax rate of 29%. The appropriate discount rate is 14%

Using your assumptions, find the NPV of the restaurant expansion. What is your recommendation to Hermione?

Cash Flow Calculation	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Sales increase/decrease
Cost Increase
Depreciation
EBIT
Taxes (29%)
Net Income
Operating Cash Flow
Increase in NWC
CapEx
After-tax Cash Flow
Year	Cash Flow	PV
				NPV