Use the below information to create a capital budget. Then use that information to answer

questions $20,21$ and $22.$

ABC Corp. has decided to capitalize on the exercise fad plans to open an exercise facility in

conjunction with its main yogurt and health foods store. To get the project underway, the

company will rent additional space adjacent to its current store. The equipment required for

the facility will cost $$50,000.$ Shipping and installation charges for the equipment are

expected to total $$5,000.$ This equipment will be depreciated on a straight$-$line basis over its

$5-$year economic life to an estimated salvage value of $$0.$ In order to open the exercise

facility, ABC estimates that it will have to add about $$7,000$ initially to its net working

capital in the form of additional inventories of exercise supplies, cash and accounts

receivable for its exercise customers.

During the first year of operations, ABC expects its total revenues to increase by $$50,000$

above the level that would have prevailed without the exercise facility addition. These

incremental revenues are expected to grow to $$60,000$ in year $2,$$$75,000$ in year $3,$ decline

to $$60,000$ in year $4$ and decline again to $$45,000$ during the fifth and final year of the

project's life.

The company's incremental operating costs associated with the exercise facility, including

the rental of the facility are expected to total $$25,000$ during the first year and increase at a

rate of $6\%$ per year over the $5-$year project life. Depreciation will be $$11,000$ per year

$($ $$55,000$ installed cost assuming no salvage value, divided by $5-$year life$).$

ABC has a marginal tax rate of $40\%.$ In addition, ABC expects that it will have to add about

$$5,000$ per year to its net working capital in years $1,2$ and $3$ and nothing in years $4$ and $5.$ At

the end of the project, the total accumulated net working capital required by the project will

be recovered.

What is the NPV of this capital project if the cost of capital is $10\%?$