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Excite Tea Ltd. is considering launching a new tea flavor, which would require them to...

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Finance

Excite Tea Ltd. is considering launching a new tea flavor, which would require them to open a new facility in ayeli. The company's CFO has gathered the following information regarding the proposed project:

Since consumer tastes change rapidly in the sector, the project only has a 3-year life.

The company is planning to build the facility on a vacant piece of land that it already owns. If it wanted to, the company could sell the land for an after-tax cash flow of 3.750.000.

It would cost 13.000.000 today to construct the new facility. This cost will be depreciated over 5 years using the double declining depreciation method.

If the new facility is opened, inventories should be increased by 2.500.000. Accounts payable would also increase by 750.000.

The CFO estimates that the project will generate revenues in the amount of 22.000.000 in each of the next three years.

Operating costs excluding depreciation is equal to 65 percent of the revenue.

The company is expecting to abandon the facility after three years. The estimated salvage value at the end of the third year is 8.000.000.

The project's cost of capital is 14 percent.

The company is subject to a 22% tax rate.

What is the project's NPV?

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