Finance and investment

Investment
45,000,000
nvestment 8 4,000,000
S1,500,000
siaso,000
$1,500,000 $1,250,000 3 $1,500,000 $1250,000 4 $1.500.000 $1,250,000 5 $1.500.000 $1,250,000
6 $1,500,000 $1,250,000 7 S2,000,000 $1,250,000 0 I $1,600,000
You have been hired as a consultant for Pristine Urban-Tech Zither. Inc. (PUTZ, manufacturers of fine zithers. The market for zit.rs is growing quiddy. The company bought some land three years ago for $2.1 million in anticipation of us.g it as a toxic waste dump aft but has recently hired another company to .ndle all toxic materials. Based on a recent Eudora., the company believ. it could sell the la. for $2.3 million on an after-tax basis. In four years, the land could be said for $2.4 million after taxes. The company atso hir. a markding firm to analyze the irther market, at a cost of $125,000. An ex.rpt of the marketing report is as foam.:
The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company .11 be able to sell 3.600, 4,300, 5,200, and 3.900 untls ea. year for the next four y.rs, resp.tively. Aga., capitalizing on the name recognition of PUTZ, we feet that a preMum price of $750 can be charg. for .. zither. B.ause zithers appear to be a f., we feel at the end of the four-year period, sales should . discontinued. PUTZ .tleves that fixed costs for the pmject will be $415,000 per year, and var.. costs are 15 percent of sal.. The equipment necessary for prod.tion will cost $3.5 million and will be .preciated accc.ing to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $350,000. Net wodcing .pltal of $125,000 will be required immediately PUTZ has a 38 perc.t tax rate. and the required retum on the project is 13 percent. VVhat is the NPV of the prc.ct?