You run a mail-order firm, selling upscale clothing. You are considering replacing your manual ordering system with a computerized system, to make your operations more efficient and to increase sales. The computerized system will cost $10 million to install and $500,000 to operate each year. It will replace a manual order system that costs $1,500,000 to operate each year. The system is expected to last ten years, and has no salvage value at the end of the period. The system is expected to increase annual revenues from $5 million to $8 million for the next ten years. The cost of goods sold is expected to remain at 50% of revenues. The tax rate is 40%. As a result of the system, the firm will be able to cut its inventory from 50% of revenues to 25% of revenues immediately. There is no change expected in the other working capital components. The discount rate is 8%.
What is the NPV of the project?