USE THE FOLLOWING INFORMATION TO ANSWER THE FOLLOWING QUESTIONS

Ashy Files manufactures a variety of saws and tools for the commercial building industry. The company is considering the construction of a new facility to update its manufacturing process. The company's CFO has collected the following information about the proposed new facility project.

• Construction of the new production facility will require an immediate outlay (at t=0) of $20 million.
• The production facility will be depreciated on a straight-line basis over 10 years to a $5 million salvage value. Ashy plans to sell the production facility to a competitor at the end of the 10-year period for $5 million.
• If the company goes ahead with the proposed project, it will require an immediate increase in inventory of $1,800,000, but will also result in an immediate increase of $800,000 in accounts payable.
• The new facility is expected to reduce annual operating expenses, excluding management salaries, by $8 million per year for each of the next 10 years. No change in annual revenue is expected.
• The accounting department plans to allocate the annual salaries of 5 managers to this new facility, however, only 2 new managers will actually be hired by the company. Each of these managers will earn $200,000 per year for the next 10 years.
• The company's interest expense each year will be $300,000.
• The company's tax rate is 40 percent.
• Followings are the information to calculate the cost of capital of the company.

Possible EventsProbabilityEstimated Returns

Market performs good0.4070%

Market performs average0.2040%

Market performs worst0.40-20%

Required:

1.What is the NPV of this project?