Werton Corporation has developed a new processor that would beused by many specialty companies. It would cost $19 million at Year0 to buy the equipment necessary to manufacture the facility. Theproject would require net working capital in Year 0 of 3,000,000and then 4 percent of revenue in each of the operational years tofollow (Year 1 to Year 3). (Note: recovery in this case will occurin period N+1). The processor would sell for $83,000 per unit, andWerton believes that variable costs would amount to $67,000 perunit. After Year 1, the sales price and variable costs are expectedto remain constant (inflation = 0.0). The company's non-variablecosts would be $1.3 million at Year 1 and would remain constantthroughout the life of the project. The processor project wouldhave a life of 3 years. If the project is undertaken it must becontinued for the entire 3 years. Also, the project's returns areexpected to be highly correlated with returns on the firm's otherassets. The firm believes it could sell 700 units per year. Theequipment would be depreciated over a 3-year period, using rates(34%, 33%, and 33%). The estimated market value (salvage value) ofthe equipment at the end of the project's 3-year life is $500,000,but environmental close down costs are estimated at $200,000 (thesecash flows along with WC recovery should occur in Year 4). Werton'sfederal-plus-state tax rate 25%. Its cost of capital is 9% foraverage-risk projects. Should Werton invest in the project (i.e.,calculate the NPV).

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