You have been asked to assess the net present value of a project analysis done by analysts at Lords Ltd., a firm that operates in both retailing and apparel production. The project, which is in the apparel business, has a 10-year life with equal annual cash flows over the period and an initial investment of K 1 million.

You notice two problems with the analysis:

The analyst used a cost of capital of 10% (which is the companys cost of capital) in computing the net present value of K 100,000. The cost of capital for the apparel business is 12%.

The analyst expensed the entire investment in year 0; you believe that this is not likely to get approval from the tax authorities, and that you would need to depreciate the investment straight line over 10 years to a salvage value of zero. The tax rate is 30%.

Estimate the correct net present value of the project.