Capital Investment Cash Flows with Research Credits: Microhard Development Corp. is working on a new spreadsheet program that can take a manager's ideas and convert them into cash flow analyses without the need to enter numerical data. The initial development costs of the project are estimated at $2.5 million. Marketing costs are estimated at $3.2 million. Ten percent of all development costs are subject to a research and development tax credit which is an immediate reduction in a company's income taxes. Microhard expects that the project will return cash flows of $2.5 million in each of Years 1 and 2; $1.5 million in Year 3; $900,000 in Year 4; $700,000 in Year 5; and, $200,000 in Year 6. Microhard can forestall the decline in cash flows by developing an enhancement to the program. Development costs of the enhancement would be $900,000 in each of Years 1 through 3. Marketing costs of $2 million would be required in Year 3 to promote the enhancement. If Microhard develops the enhancement, cash flows in Years 1 and 2 would be the same. Year 3 cash flows would decline to $1.1 million because customers would wait for the enhancement. Cash flows in Years 4 and 5 would be $2.7 million each year, and $1,650,000 would be obtained in Year 6. Microhard's marginal tax rate is 39 percent, and it uses a 20 percent hurdle rate. Development costs and marketing expenses are deductible when incurred.

Required: Would the net present value of the spreadsheet program be greater with the enhancement?