Swifties Apparel Inc. is considering starting a new line of stylish shoes, called Shake it off, by purchasing two new machines, the TS-1000 and JLO-1500. The cost of the TS-1000 is $4.5 million and the cost of JLO-1500 is $2 million. The installation cost for each machine is $200,000. Unfortunately, installing these machines will take several months and will partially disrupt production of the current products such as Swifties Fearless Bags. The firm has just completed an $80,000 feasibility study to analyze the decision to buy the TS-1000 and JLO-1500, resulting in the following estimates:

Marketing: Once the TS-1000 and JLO-1500 are operating next year, the extra capacity is expected to generate $19 million per year in additional sales, which will decrease by 6% per year for the 12-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $7.5 million this year (year 0). The cost of goods for the new shoes and other Swifties products is expected to be 60% of their sale price. The increased production will require additional inventory on hand of $2.4 million, to be added in year 0 and depleted in year 12, and an additional $1 million in cash that is to be added in year 0 and retrieved in year 12.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2 million per year from year 1 to 12.

Accounting: The TS-1000 has a CCA rate of 42% and could be sold at the end of the project for $2 million. The JLO-1500 has a CCA rate of 32% and no salvage value is expected. The firm expects receivables from the sales to be 16% of revenues and payables are expected to be 13% of the cost of goods sold from year 1 to year 11, and both receivables and payables are equal to zero in year 12. Swifties' marginal corporate tax rate is 36%.

Finance: The cost of capital for Swifties Apparel Inc. is 16%. However, the risk of producing shoes is very different from the current products of the company. Here is the list of other companies producing fancy shoes:

• Blank Space Inc.: It has $600 million in debt with debt beta of 0.4 and $400 million in equity. The equity beta is equal to 1.5.
• Delicate Inc.: It only has $500 million in equity with the equity beta equal to 1.2.
• Invisible String Inc.: It has $600 million in debt with debt beta of 0.6 and $9000 million in equity. The equity beta is equal to 1.4.

The market risk premium is 7% and the risk-free rate is equal to 3%. Swifties is an all-equity firm and plans to finance the new project only through issuing equity. Compute the NPV of the new project. All classes of assets continue to exist after year 12.