?Domenghini Inc. is considering a proposal to enter a new line of business. In reviewing the proposal, the company’s CFO is considering the following facts:
• The new business will require the company to purchase additional fixed assets that will cost $600,000 at t = 0. For tax and accounting purposes, these costs will be depreciated on a straight-line basis over three years.
• At the end of three years, the company will get out of the business and will sell the fixed assets at a salvage value of $100,000.
• The project will require a $50,000 increase in net operating working capital at t = 0.
• The company’s marginal tax rate is 35 percent.
• The new business is expected to generate $2 million in sales each year (at t = 1, 2, and 3). The operating costs excluding depreciation are expected to be $1.4 million per year.
• The project’s cost of capital is 12 percent.
What is the project’s net present value (NPV)?