Maple Media is considering a proposal to enter a new line of business. In reviewing the proposal, the company's CFO is considering the following facts:
1. The new business will require the company to purchase additional fixed assets that will cost $600,000 at t=0. For tax and accounting purposes, these costs will be
2. At the end of three years, the company will get out of the business and will sell the fixed assets at a salvage value of $100,000.
3. The project will require a $50,000 increase in net operating working capital at t=0, which will be recovered at t=3.
4. The Company's marginal tax rate is 35 percent.
5. The new business is expected to generate $2 million in sales each year (at t=1,2, and 3).
6. The operating costs excluding depreciation are expected to be $1.4 million per year.
7. The projects's cost of capital is 12 percent.
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