BLTD Corporation is a drug manufacturing company that emphasizes developing new drugs. They have been working on a series of related methods to help people cope with anxiety. Currently they are considering the mass production of a new anti$-$exam stress pill which has just received FDA approval.

BLTD has invested $$250$ million in research and development of this new medication and the test results show that the pill is $99\mathrm{.}9\%$ effective and has minimal side effects. A marketing bureau has been hired and was paid $$75,000$ to analyze the potential market for this new pill plus they are holding a refundable $$250,000$ retainer to do further market research while the plant is in production. If the plant is not built, the marketing firm will refund the retainer. According to their research if BLTD began selling the pill today, the sales price would be $$1$ per pill and they could sell $50$ million pills in the first year. They estimate that sales volume will increase by $10\%$ per year for $4$ years then level off. The marketing company also estimates that if BLTD began selling the pill today, the sales of$,$ CHILL, their currently available anxiety pill, would be cannibalized and CHILL$$s after tax cash flows would decrease from $$150$ million to $$135$ million.

With Congress turning its attention to federal drug benefits, BLTD$$s lobbyist warns that it is possible drug benefits will be capped for eligible customers. BLTD estimates that $50\%$ of its customers will be eligible for this benefit and the marketing firm believes today$$s effective sales price for these customers will be $$0\mathrm{.}90$ per pill.

According to the plant engineers, variable production costs for this pill are projected at $40\%$ of sales in the first year of production, and $20\%$ for subsequent years. Similar to other products, BLTD headquarters will assess a charge of $1\%$ of sales to cover overhead costs. The engineers estimate that fixed costs will be $$15$ million per year during production. From past experience, you know that though the engineers$$ estimates are normally accurate there is a possibility that they overestimated the costs. Historically, if the cost estimate was too high, the actual costs were $15\%$ lower than predicted.

Total net working capital requirements are $$5$ million in the first year of production and will double each year for the next $3$ years, thereafter NWC will remain constant. Net working capital will be recovered at the end of the project.

The marginal tax rate for BLTD is $30\%,$ inflation is predicted to be $3\%$ and similar risk projects have a required rate of return of $11\%.$ All estimates, except those from the marketing research firm, are in nominal dollars. You believe the appropriate economic life of this project is that the plant will be in production for $6$ years.

BLTD plans on financing the buildings with a $20-$year, $8\%$ annual coupon bond. Though the finance department believes their current estimate is the most likely required rate of return, they believe it is possible that the required return may increase to $13\%.$

BLTD needs to buy a new production facility $($building$)$ for this project. The price of a suitable facility is $$20$ million. The production facility has an expected salvage value of $$10$ million in the final year of the project. The building can be purchased today and it will be ready for production in $2$ years $($beginning of year $3).$ During those two years, the plant will have $$8$ million worth of equipment installed. The payment for that equipment will be made in two equal payments. One payment will be made today and one payment a year from now. You estimate that the salvage value of the equipment will be $$2$ million. BLTD also needs a special storage facility $($building$)$ for this project. BLTD currently has one available storage unit, which was bought $4$ years ago for $$10$ million. If BLTD doesn$$t use the storage facility for this project, they could sell it for $$15$ million. You estimate it will be worth $$5$ million at the end of the project. BLTD uses $20$ year MACRS for its buildings and $7$ year MACRS for its equipment.

Use the most likely estimate of cash flows $($i$.$e$.$ your base$-$case$)$ to answer question $($a

a$)$ What is the most likely NPV of this project? Would you accept it$?$