Reference no: EM132473582

You are considering a project to produce umbrellas for the next 5 years. You bought a piece of land five years ago for $760,000 that you currently do not use. If you sold it today, after taxes, you would receive $912,000. You estimate that you could sell it for $1,500,000 after taxes in five years. You will need to invest $1,000,000 in a new manufacturing plant and $350,000 in equipment to actually produce the umbrellas; this plant and equipment will be depreciated straight-line to zero over the project's 5-year life. The equipment can be sold for $456,000 after taxes at the end of the project. At the beginning of the project, inventory will increase by $450,000, accounts receivable will increase by $50,000, and account payable will increase by $31,000. All net working capital will be recovered when the project ends. The project is expected to generate operating cash flows of $330,000 a year for the 5 years. If the company uses a WACC of 10%, what is the NPV of the project?