Sovrano Café is considering a major expansion of its business

Subject:ManagementPrice:3.87 Bought8

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Sovrano Café is considering a major expansion of its business. The details of the proposed expansion project are summarized below:
o The company will have to purchase $800,000 equipment, that require installation cost and transportation cost equal $150,000.
o The project has an economic life of 6 years.
o The cost can be depreciated using straight line method.
o At t = 0, the project requires that the account receivable to increase by $200,000 and the inventory by $350,000 while the account payable to increase by $400,000
o The project’s salvage value at the end of 6 years is expected to be
$160,000.
o The company forecasts that the project will generate $725,000 in sales the
first 3 years and $650,000 in sales during the last 3 years
o Each year the project’s operating cost excluding depreciation is expected
to be 50% of sales revenue.
o The company’s tax rate is 40%
o The company already pays marketing expenses equal 80,000.
o The project’s cost of capital is 10%
What do you recommend?