Your client has asked you to evaluate an investment project for her using what you have learned in school regarding the net present value method. The project will run for eight years and your client's required minimum return on investment is 22%. You have obtained the following information:
Cost of machinery 220,000
Working capital required 80,000
Salvage value of the machine in eight years 12,000
Annual revenues & expenses:
Sales revenue 180,000
Cost of goods sold 80,000
Selling and administrative expenses 20,000
NOTE: The working capital needed for the project will be released at the end of the eight years.
Please provide a recommendation, explanation and supporting calculation for your client to review.