Golden Gate Windsurfing Inc. is considering a project to expand its current operation. Given the following information and assuming straight-line depreciation to zero:

What is the net present value of this project?

Should Golden Gate Windsurfing Inc. accept the project and why?

• Market research study = $15,000

• Project life = 5 years

• Initial investment on fixed assets = $320,000; the fixed assets will be sold for $30,000 at the end of year 5.

• Initial working capital = $25,000 (the money will be recovered on closure of the project)

• Operating income = (sales – costs) = $150,000 per year;

• Losses in current sales if proceed the project: $20,000 in year 1 and $16,000 in year 2.

• Corporate tax rate = 25%

• Discount rate 13.45%