McAuber & Sons are a family owned partnership that sells books by mail order. Partnership income is shared among the three partners who all have a marginal tax rate of 47%. The corporate tax rate is 30%.

The youngest partner has suggested that posting catalogues and asking customers to return order forms by mail is a bit outdated. She has suggested that the firm set up an online catalogue that allows customers to order books and pay using a credit card from the customer's computer. The computerised system would replace the current mail system.

The current mail system used by McAuber costs $15 per 100 customers to process. Each customer spends an average of $30 per order and this is expected to continue under the new system.

Netlink Ltd have agreed to design and maintain the McAuber & Sons website for an upfront fee of $500 000. There will also be an ongoing service fee of $10 per 100 customers that order from the website. The contract with Netlink is for 4 years. At the end of 4 years, the entire ordering system will be reviewed. If McAuber decide to terminate the contract with Netlink prior to the contract date, they will have to pay Netlink a penalty of $100 000.

The new online advertising and ordering system is expected to increase sales from the current level of $750 000 p.a. to $1.2 million p.a. for the next 4 years. Determine the relevant cash flows for the project and calculate the NPV using a required return of 10%. Show all relevant equations and calculations. Should the ordering system be changed?