Daniels New Frontiers Corporation $($DNFC$)$ is considering a contract for a $33-$year project from a

$($government$)$ municipality. The project would be "self$-$standing" meaning that DNFC would be

responsible for the project's costs of development, construction, and the expenses of running the

operation. Still, the company would also receive all project revenues. From the municipality's vantage

point, it hopes the project will have a positive economic impact on the town by increasing jobs and

wages and perhaps increasing the town's population growth.

The municipality has offered detailed financial information. As the most recently hired college graduate

at DNFC$,$ and because of your degree in finance, your supervisor has asked you to evaluate the project

and present your findings to the company's project evaluation committee. This is your first major

assignment, and your reputation depends on the quality of your analysis and a good presentation.

The development and construction of the project will take $3$ years, and the project will operate for $30$

years. The riskless rate is $5\%$; the rate of return on the market portfolio is $10\%,$ and the project's beta is

$1\mathrm{.}2.$ DCC has no debt. DNFC expects to spend $$250,000$ for land one year after the contract is awarded

$(t=1).$ Construction of the building will cost $$2$ million, and the equipment will cost $$3$ million, both of

which will be cash outflows at $t=2.$ The life of the building is $30$ years, and it will be depreciated toward

a salvage value of $$50,000.$ The equipment has a five$-$year useful life with no salvage value. The

equipment will be replaced at five$-$year intervals for $$3$ million upon each replacement. Straight$-$line

deprecation will be used $($over years $t=4,t=8,$ etc.$).$ To support operations, DNFC expects to need

$$20,000$ in additional cash, to invest $$60,000$ in accounts receivable and $$80,000$ in inventory, and to

maintain $$60,000$ in accounts payable. The investment in net working capital occurs at the start of

operations $(t=3).$ The revenues from the project will amount to $$800,000,$ fixed costs will be $$100,000,$

and variable costs will be $$150,000,$ all on an annual basis. At the end of the project, the firm is expected

to restore the surrounding area for $$420,000,$ The firm's marginal tax rate is $21\%.$ The value of the land

is expected to be constant over the project's life, and the building can be sold for $$150,000$ at the end of

the project.

What is the minimum amount the municipality would have to pay DNFC when the contract is awarded $($t

$=0)$ to make it worthwhile for DNFC to undertake the project?