Brooks Company (BC) has recently identified an island off the northwestern coast of Africa that has some of the richest fertilized land in the world. BC wants to plant orange and grapefruit trees. The harvested fruit will be sold only in the United States and these citrus trees have a life span of just five years. The owners of the island have offered to sell it to BC for $5 million. BC would also be faced with additional initial costs of $15 million to engineer the equipment that will be used in planting, fertilizing, and harvesting. BC is an environmentally aware firm and has agreed to plant flowers and butterfly bushes before selling the island at the end of the five-year period.

BC will plant trees that will produce no fruit until they mature at the end of year three. Therefore, there are no revenues expected in years one and two. BC will begin generating revenues immediately from supporting product lines, such as a gift shop, coffee house, and online sales of merchandise. The harvest begins in year 3 and continues until the end of year five. The following information has been made available to BC:

Year	One and Two		Three, Four, and Five
Revenues	$1 million		$30 million
Operating Expenses (excluding depreciation)	$1 million		$13 million
Depreciation Expense	5% annually		30% annually
Interest Expense	$1 million		$0.75 million

BC will use the New York Bond market to issue $11 million in five-year bonds. The coupon rate is 6.22% and the current price should be $976.

BC common shares pay a current dividend of $1.83 with an expected growth rate of 3.8%. Current stock price is $17.93.

The following is a list of other relevant information: BC pays a marginal corporate tax rate of 20%; remember that land cannot be depreciated. BC hopes to sell the island for $6 million at the end of year 5 after spending $4 million on flower and bush planting and making a $4 million donation to the European Citrus Fund as part of its philanthropic efforts.

1. Determine the net present value (in terms of US dollars) for this project.

2. Describe two operating risks and one financial risk to which BC is exposed.

3. BC currently owns farmland in the Midwest of the US and harvests corn, wheat, and barley. This new project described above will represent approximately 33% of BCs cash flows. Describe the manner in which BCs risk managers should approach this new project.

4. Suppose that over the few months after this investment in the island, BCs bond and stock prices fall. Describe the impact on profitability, return measures, and value.