In order to make sure that the proposed t-shirt venture generate value, they decided to put their corporate finance skills into practice. After careful data collection, they come up with the following assumptions for T-shirt Corp.:

Assumptions:

1. The life of the project is expected to be 4 years. Please assume that the analysis is taking place at the end of 2019. 2020 will be the first year of operation.

2. The projected sales are:

	2020	2021	2022	2023
Number of t-shirts	1,000	1,500	1,500	2,000

3. The price of a t-shirt will be $20 in 2020 and will remain the same in the following years.

4. The cost of procuring one t-shirt will be $5 in 2020 and will increase by 1% every year.

5. The cost of printing a design will be $2 per t-shirt during 2020-2023.

6. There will be marketing expenses amounting to $1,000 per year.

7. T-shirt Corp. needs to invest in a machine that would print designs on the t-shirts. The machine costs $3,000 and will be depreciated fully using a straight line method over 2 years.

8. At the end of 2023, the design printing machine will be recycled at no cost.

9. The company will run the operations in a garage owned by one of the parents. The rent and utilities allocated to the garage is $200 per month. This amount would be paid regardless of how the garage is utilized.

10. In order to run the t-shirt venture, the T-shirt Corp. will need to invest 10% of the following years sales in inventory. The venture will also need to have 15% of following years sales in accounts payable and 20% of following years sales in accounts receivable.

11. T-shirt Corp. spent $5,000 for market research in 2018 and 2019.

12. Tax rate (federal plus state) is 30%.

13. The initial investments will be financed by a bank loan. The local community bank recently quoted an interest rate of 8% to T-shirt Inc. (This is the discount rate for the project. More on this later!)

Please calculate the free cash flows for this project. What is the NPV? Should the project be accepted? (PLEASE SHOW ALL WORK)