ABC company is considering a new project with initial cost of $118,000 (cost of equipment) at Year 0. Equipment will be installed in warehouse that is owned by the company starting from 2015 and has a market value of $100,000. The project will entail an investment of $20,000 for working capital, which will be recovered at the end of the 3-year life of the project. This project is expected to produce Net income of $45,000 annually for 3-years. There is no interest expenses and depreciation expenses based on MACRS are the following:

1 year - 5,000

2 year - 2,000

3 year - 1,000

The equipment can not be sold at the end of the project. Discount rate is 11.5 percent and a tax rate is 23 percent.

1. What is the initial investment for the project at Year 0?

2. Make decision about this project based on net present value (NPV).