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 which can be depreciated using the three year MACRS depreciation schedule. 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, 4). The companys operating cost (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 of $50,000.

The projects WACC = 12 percent.