A venture capitalist is considering investing in the following project. From an economic viewpoint, would you recommend it? This business would require expenditures at time zero of $320,000 for land, $300,000 for inventory working capital, $1,800,000 for a non-residential (commercial) building, $3,000,000 for equipment, and $360,000 for vehicles.

Starting in year one it is estimated that production will generate annual end-of-year escalated revenue of $5,000,000 with escalated operating costs of $2,000,000. In the following years, it is estimated that revenues will escalate at 12% per year while operating costs will escalate 8% per year. At the end of year four, it is expected that all the assets and working capital can be sold for an escalated terminal value of $6,000,000. Use straight-line depreciation over 39-years for the building cost starting in year one, neglect the impact from the mid-month convention, and take a full deduction in year one. Also, use straight-line depreciation for a 7-year life for the equipment cost starting in year one and straight-line depreciation for a 5-year life for the vehicles also starting in year one (assume the half-year convention is relevant for both the 7 and 5-year property in year one). Assume any sale value gain (or loss) would be accounted for as ordinary income. Carry any losses forward to be used against project income. Write off the remaining tax book values against the sale value at the end of year four to compute the gain or loss from the sale.

Determine the investment after-tax DCFROR, NPV, and PVR, assuming a 25% effective state and federal income tax rate. The investor is seeking an after-tax escalated dollar minimum DCFROR of 15%.

Additionally, please calculate the NPV if the 7-Year and 5-Year MACRS depreciable assets were eligible for 100% bonus depreciation taken in year one.