BNT Transportation is considering building a new facility to manufacture tugboats. If BNT builds the new plant, it will partially replace an existing plant that some in BNT management argue is inefficient. The new facility would require an initial capital expenditure of $12 million today. This cost would be depreciated on a straight-line basisover the forecasted 15-year lifetime of the plant to a final book value of $0. The facility would be built on land that BNT already owns. BNT real estate professionals estimate that if the new facility is not built, the land could be sold immediately for $3.5 million. After 15 years, BNT estimates that the facility, including the land, could be sold for $4.0 Million. Sale of the facility (including the land) at that point would generate require the assistance of a business broker whose fee is expected to be 20% of the total market value.

BNT anticipates that output from this plant will produce revenues of $8 million per year in the first year. Direct expenses (raw materials, labor and direct overhead) not including depreciation are forecasted to be $0.75 of every dollar of sales. Growth in both revenues and expenses is forecast to be 1% per year for the next 15 years, after which the plant will be of no use and produce no revenues or expenses. The new facility would reduce Earnings Before Interest and Taxes (EBIT) at the existing plant by $500,000 per year. The foregone EBIT was expected to grow at 1% per year. BNT's corporate office also charges each plant $0.10 on every dollar of revenue in order to cover the costs associated with the corporate office. Total costs at corporate are not expected to change. The appropriate discount rate for BNT's Free Cash Flow (FCF) is estimated to be 8%.

a.What is the NPV of the new facility?

b.Should BNT build the new facility? Why or why not?