Mills Mining is considering an expansion project. The proposed project has the following features:

• The project has an initial cost of $500,000. This is also the amount that can be depreciated

using the following depreciation schedule:

Year MACRS	Depreciation Rates
1	33%
2	45%
3	15%
4	7%

• If the project is undertaken, at t = 0 the company will need to increase its inventories by

$50,000, and its accounts payable will rise by $10,000. This net operating working capital

will be recovered at the end of the projects life (t = 4).

• If the project is undertaken, the company will realize an additional $600,000 in sales over

each of the next four years (t = 1, 2, 3, and 4).

• The companys operating costs (not including depreciation) will equal $400,000 a year.
• The companys tax rate is 40 percent.
• At t = 4, the projects economic life is complete, but it will have a salvage value (before tax)

of $50,000.

• The projects WACC is 10 percent.
• The company is very profitable, so any accounting losses on this project can be used to

reduce the companys overall tax burden