George Coffin, Jr is the sole owner of the Coffin Vault Company in Duluth, MN. He inherited the company from his father. He has no children. Coffin is 60 years old and has decided that he wants to sell the company to his employees by creating an ESOP (Employee Stock Ownership Plan). He has 100 employees, and each employee would get one share of stock in the company. Each employee would be required to buy the share of stock for $5,000 to give the company $500,000 in cash as operating cash on hand. The employees cannot sell their shares until 2027. All employees have accepted the terms of the agreement by giving the company treasurer their check for $5,000. Coffin Vault makes high-end burial vaults using reinforced concrete. Each vault is self-sealing with a base and a cover that fits over the coffin when it is placed in a grave. The vault protects the gravesite from sinking if the coffin collapses from the weight of the dirt above it. Under state and federal law, cemeteries cannot require the use of a vault, but most families buy one because they are encouraged to do so when they make funeral arrangements. Coffin vaults cost $10,000 each, but the materials to make them only cost $2,500. Labor and other administrative costs add an additional $5,000 to the cost of each vault. Annual sales for the company in 2019 totaled $10,000,000, and sales are expected to grow by 10 percent per year for the next five years. The cost of materials would increase by 5 percent per year for five years. And salaries for employees would remain the same for five years, under the terms of the ESOP.

Coffin Vault pays federal corporate taxes of 25 percent and corporate state taxes of 8 percent. In addition, the company pays 7.06 percent in Social Security taxes for the employees. Coffin Vault has assets of $5,000,000 in buildings and equipment. The company has no debt, and the buildings and equipment have been fully depreciated. The ESOP will be able to claim depreciation on $5,000,000 in fixed assets beginning in 2020 because it is a new company buying the fixed assets of Coffin Vault. The ESOP will be buying the company from George Coffin.

George Coffin received $2,000,000 in cash from the ESOP at the time of sale on April 1, 2020. The ESOP will borrow the $2 million from a local bank at 7% interest for five years. The ESOP will make 10 equal payments to the bank. Payments will be due every six months beginning on July 1, 2020. 2. George Coffin will receive 20% of the annual depreciation allowance beginning on Feb. 1, 2021. The payments will continue until the buildings and equipment are fully depreciated. Use the 5-year MACRS on page 398 in the textbook to answer the questions that follow the offer. 3. In 2026, when the final payment from annual depreciation is made, Coffin will receive $2 million if the annual sales revenue has reached $16 million in 2025. The $2 million cash payment will be made in April 2026. Coffin believes the likelihood of the company reaching that sales figure is 90%.

Can you help me find the net present value of this problem?