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You are looking into a factory to make strained peas. You estimate that the equipment...

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Finance

You are looking into a factory to make strained peas. You estimate that the equipment will cost $50,000, which you would depreciate over the 10-year life of the project to a book value of zero. The salvage value of the equipment is zero. You think you can sell 15,000 cans at $2/can. The cost of producing the cans is $0.80 each. Your tax rate will be 40%. You plan to maintain an inventory equal to 25% of revenues and you can salvage 80% of this working capital at the end of the projects life. You plan to use your garage, which means you will have to pay $2,000/year to park your car elsewhere (the good news is that the $2,000/year is tax-deductible). To estimate the cost of capital for the project you look at the following comparable firms:

r* = 0.17

What is the NPV?

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