The Wayne Company currently exports 500 calculators per month to Jordan at a price of

\($60\) and the variable cost per calculator is \($40.\) In May 1990, the company is approached by the government of Jordan with a request that it establish a small manufacturing plant in Jordan. After a careful analysis, the company decides to make an equity investment of

\($1\) million, half of which will represent working capital and the other half-fixed assets. The company will sell the plant to a local investor for the sum of \($1\) at the end of 5 years and the central bank of Jordan will repay the company for the working capital of \($500,000.\) In return for an increase in tariffs against other companies, the Wayne Company is willing to sell its calculators in Jordan for \($50\) per unit. In addition, the company will have to buy certain raw materials from local suppliers and will have to use local managers. The total costs of the local managers and materials will be \($15\) per calculator. Other materials will be purchased from the parent at \($10\) per unit and the parent will receive a direct contribution to overhead after variable costs of \($5\) per unit sold. Under this arrangement, the company expects that it will sell 1,000 calculators per month. The fixed assets are to be depreciated on a straight-line basis over a 5-year period. The company will have to pay income taxes at 50 percent on profits earned in Jordan. The USA also has a 50 percent tax rate with direct credit for Jordanian taxes. The current exchange rate is 10 Jordanian dinars per dollar and it is expected to stay the same for the next 5 years. There is no restriction on cash flow repatriation.

(a) Determine the net present value of the project at 10 percent.

(b) The Wayne Company has been informed that, if it decides to reject the project, it would lose its entire export sales. How does this affect the decision by the Wayne Company?