United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse which is currently rented out to a neighboring firm. This years rental charge on the warehouse is $100,000 and this number is expected to grow at 4% per year. In addition to using the warehouse the proposal envisages an investment in plant and equipment of $1.2 million. Depreciation is $120,000 per year. Pigpen expects to terminate the project after eight years and to resell the plant and equipment then (i.e., in t=8) for $400,000. The project requires an initial (t=0) investment in working capital of $350,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7.

This years sales of hog feed are expected to be $4.2 million and thereafter sales are forecasted to grow by 5% per year. Manufacturing costs are expected to be 90% of sales. The corporate tax rate is 35% and the cost of capital is 12%.

What is the NPV of Pigpens project? Don't use Excel, and show steps.

Hint: Ask yourself if the sale of the plant and equipment in t=8 is taxable.