A company is considering the following investment opportunity:

Invest $40 million dollars in a new business. The business is expected to generate annual sales of $35 million the first year, and $50 million each in years 2 through 4. Operating expenses are expected to be $25 million the first year, and $35 million each in years 2 through 4. Annual depreciation expense is $10 million ($40 million over 4 years). Ignore any salvage value after 4 years. The tax rate is 40%. The company uses a discount rate of 12% to evaluate investments.

Calculate net present value of this opportunity and recommend whether or not the company should move forward with it.

Note: this problem is similar to problem 9 in the Problems section of chapter 7 in your text. Answers to odd- numbered questions are given in the back of your text, so you can refer to the answer to problem 9 if you are having difficulty getting started on this problem. However, keep in mind that problem 9 uses an Excel formula to solve for the internal rate of return. We are looking for net present value instead. You will need to use the formula covered in class (and also shown in the text) to discount each year's cash flow back to the present as part of your calculation of NPV.

Show your work below: