Problem:
Summer Thyme., is considering a new 5-year expansion project that requires an initial fixed asset investment of $3.51 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which it will be worthless. The project is estimated to generate $3,120,000 in annual sales, with costs of $1,248,000. The tax rate is 33 percent and the required return is 14 percent. The project requires an initial investment in net working capital of $390,000 and the fixed asset will have a market value of $273,000 at the end of the project.
Required:
Question: What is the NPV?