Your friend Hagrid is thinking about opening a new restaurant, the Hungry Hagrid, and he asked you to complete a financial analysis of the project. As you're putting your 5-year projections together, you estimate the following:

The cost of the project will be $2,500,000 immediately. Your accountant tells you that IRS rules mandate that this must be depreciated over a 7-year period, using the following accelerated annual depreciation schedule: 28%, 20%, 17%, 12%, 10%, 8%, and 5%.

Annual sales estimates from Hagrid are as follows:

Year 1: $850,000

Year 2: $875,000

Year 3: $925,000

Year 4: $1,000,000

Year 5: $2,000,000

COGS will be 25% of sales.

NWC investment of $150,000 immediately and will be 18% of sales in years 1 to 5 (assume NWC will be recovered at the end of the project).

Salvage value of $750,000 at the end.

Tax rate of 22%. The appropriate discount rate is 12.5%.

Using your assumptions, find the NPV of the restaurant venture. What is your recommendation to Hagrid?