12. You just started working at a new CBD company who has hired you to evaluate their business plan. Last year, they purchased a building for $1 million, which is being depreciated over 30 years using the straight-line method. The company has applied for licenses to manufacture and sell CBD products, and they just heard that they have been approved for either non-THC CBD products (Option A) or for medicinal marijuana (THC based products, Option B). They cannot pursue both product lines. The company has been approached by someone who is willing to rent the building for $48,000 per year for a lease term of 10 years. The company anticipates being in business for 10 years. At the end of the 10 years, it expects to rent the building to someone at the same rate specified above. When it suspends operations, it will need to restore the building back to an empty shell. This restoration cost can be deducted from income in the year the money is spent.

For Option A, the company will have to invest $200,000 of capital expenditures to be depreciated over 10 years on a straight-line basis, will have to invest $75,000 of working capital (which can be recovered at the end of the project) and will have to spend $50,000 restoring the building in 10 years. For this project, the company expects to sell $250,000 of products each year.

For Option B, the company will have to invest $500,000 of capital expenditures to be depreciated over 10 years on a straight-line basis, will have to invest $125,000 or working capital and will have to spend $75,000 restoring the building in 10 years. For this project, the company expects to sell $350,000 of products each year.

In both Option A and Option B, the variable costs to manufacture products is 30% of sales, and fixed manufacturing costs (excluding depreciation) are expected to be $75,000 per year. The companys tax rate is 20% and its target (required) rate of return is 12%.

Which of the three options should the company pursue? (3 points; make sure you show your work clearly if youd like to get full or partial credit)

Fox option A, I calculated the operating cash flow is 45,600. So, the annuity pmt is 45,600

the initial investment is 275,000

?????but why the fv is 75k-40k =35k???????? and how we get pv and npv?