James Roger is analyzing a project that plans to invest $20 million in Galaxy Place, a new interactive arcade space. Galaxy Place will take two years to build, and the expenditures will be incurred over the two years as follows:

Today $10 million One year from now $5 million Two years from now $5 million

Once the arcade is built, James expects the arcade to attract teenagers in record numbers, resulting in revenues of $10 million per year for the next 10 years after the arcade is built. The arcade will cost $4 million per year to operate, including annual depreciation of $1 million. James plans to build the arcade on land that he bought three years ago for $1.2 million. If James does NOT take on this project, John plans to lease the land out for $200,000 per year before taxes. At the end of the 10 years of operating, it is assumed that the arcade can be sold for $11 million. The project is subject to tax at a rate of 40%, and the weighted average cost of capital is 15%. Ignore the tax shield effects of capital cost allowance (CCA) but assume that depreciation can be deducted for tax purposes.

a) Calculate the present value of the initial investment for the project.

b) Calculate the annual after-tax operating cash flows for the arcade.

c) Calculate the net present value (NPV) of the project. d)

Assume the arcade will operate for 20 years and the salvage value is $5 million. Calculate the NPV of the project.