# Burress Beverages is considering a project where they would open a new facility in Seattle, Washingt

Burress Beverages is considering a project where they would open a new facility in Seattle, Washington.  The company’s CFO has assembled the following information regarding the proposed project: It would cost \$500,000 today (at t = 0) to construct the new facility. The cost of the facility will be depreciated on a straight-line basis over five years. If the company opens the facility, it will need to increase its inventory by \$100,000 at t = 0.  \$70,000 of this inventory will be financed with accounts payable. The CFO has estimated that the project will generate the following amount of revenue over the next three years:

Year 1       Revenue = \$1.0 million

Year 2       Revenue = \$1.2 million

Year 3       Revenue = \$1.5 million Operating costs excluding depreciation equal 70 percent of revenue. The company plans to abandon the facility after three years.  At t = 3, the project’s estimated salvage value will be \$200,000.  At t = 3, the company will also recover the net operating working capital investment that it made at t = 0. The project’s cost of capital is 14 percent. The company’s tax rate is 40 percent.

What is the project’s net present value (NPV)?   \$ 69,207   \$178,946   \$286,361   \$170,453   \$224,451

I don&#39;t know how to get 224451