Sovrano Caf is considering a major expansion of its business. The details of the proposed expansion project are summarized below:

o The company will have to purchase $950,000 equipment, that require installation cost and transportation cost equal $100,000.

o The project has an economic life of 5 years.

o The cost can be depreciated using straight line method.

o At t = 0, the project requires that working capital will increase by $200,000 o The projects salvage value at the end of 5 years is expected to be $60,000. o The company forecasts that the project will generate $725,000 in sales the

first 2 years and $650,000 in sales during the last 3 years

o Each year the projects operating cost excluding depreciation is expected to be 50% of sales revenue.

o The companys tax rate is 40%

o The company already pays marketing expenses equal 80,000.

o The projects cost of capital is 10%

What do you recommend?