A new expansion project will produce operating cash flows of $90,000 a year for four years. During the life of the project, inventory will increase by $35,000 and accounts receivable will decrease by $10,000. Accounts payable will increase by $15,000, and wages payable will increase by $5,000. At the end of the project, net working capital will return to its normal level. The project requires the purchase of equipment at an initial cost of $70,000. Equipment delivery and installation costs are $10,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project (year 4) creating a $30,000 before-tax cash flow. The company also owns land that will be used for the expansion. The company bought this land 5 years ago at a cost of $181,000. At the time of purchase, the company paid $14,000 to level out the land so it would be suitable for future use. Today, the land is valued at $215,000. What is the net present value of this project given a required return of 10 percent and tax rate of 34%? Show full work, including cash flow table and NPV formula.
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