A kiteboarding company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,250,000 to construct in Year 0 with a salvage value of $150,000 in Year 12. The board manufacturing facility will cost $1,500,000 in Year 0 with a salvage value of $200,000 in Year 12. Combined annual revenue for the new kites and boards is expected to be $800,000 with annual combined operating costs of $300,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $500,000 in Year 0. The management team estimates that the land may be sold for the same value of $500,000 at the end of Year 12. The company uses a discount rate of 10% and a tax rate of only 15%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities.

a. What is the present value of the operating cash flows (i.e., revenues minus costs after tax)?

a.1,925,172.73

b.2,347,252.50

c.2,895,819.02

d.3,406,845.91

e. none of the above

b. What is the present value of the total depreciation tax shield?

a.283,143.65

b.287,143.65

c.289,516.27

d.3,406,845.91

e. none of the above

c. What is the NPV of this project?

a.97,819.13

b.199,798.87

c.337,216.73

d.710,825.76