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Louie’s Leisure Products is considering a project which will require the purchase of $1.5 million of...

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Finance

Louie’s Leisure Products is considering a project which willrequire the purchase of $1.5 million of new equipment. Shipping andinstallation will be an additional $300,000. For tax purposes, theequipment will be depreciated straight-line to a salvage value of$200,000 over the five-year life of the project. Louie’s expects tosell the equipment at the end of five years for $100,000. Annualsales from this project are estimated at $1.2 million with annualoperating costs estimated at $500,000. Net working capital is equalto $100,000, and all of the net working capital will be recouped atthe end of the project. The firm desires a minimal 14% rate ofreturn on this project. The tax rate is 34%. What is the NPV of theproject?

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