United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year'srental charge on the warehouse is $170,000, and thereafter, the rent is expected togrow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages aninvestment in plant and equipment of $1.62 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and toresell the plant and equipment in year 8 for $540,000. Finally, the project requires animmediate investment in working capital of $420,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $5.60 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 25%. The cost of capital is 12%.