Our last project of the term is the Design Exercise Report $($DER$)$ Project and is due Sunday, June $9$th by $11$:$59$ PM$.$

The goal of the Design Exercise Report is to prepare and communicate an economic analysis of an engineering system. Economic evaluation is a management function that provides actionable information to upper management to guide investment decisions. We have been learning the techniques of evaluation, but it is important to realize that correct evaluation is already assumed when upper management receives the results of your work. The clarity and brevity of your communications is at least as important as the technical details of the analysis work. The deliverable is an excel spreadsheet showing the Net Present Value of the project. This would be attached to a written Executive Summary of the project in a true Corporate environment but for this project, we are focusing on the economic analysis.

For this project, you have been hired as a consultant for DrexelTech, Inc. $($DTI$),$ manufacturers of a new solar energy storage system. The market for renewable energy continues to expand globally. DTI bought some land three years ago for $$1\mathrm{.}9$ million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $$2\mathrm{.}2$ million on an after$-$tax basis. In four years, the land could be sold for $$2\mathrm{.}4$ million after taxes. The company also hired a marketing firm to analyze the solar energy storage market, at a cost of $$275,000.$ An excerpt of the marketing report is as follows:

The solar energy storage industry will have a rapid expansion in the next four years. With the brand name recognition that DTI brings to bear, we feel that the company will be able to sell $5,200,5,900,6,500,$ and $4,800$ units each year for the next four years, respectively. Again, capitalizing on the name recognition of DTI, we feel that a premium price of $$435$ can be charged for each solar energy storage device. Because renewable energy is a rapidly changing market due to continuing technological advances, we feel at the end of the four$-$year period, sales of this product should be discontinued to make room for a more advanced product.

DTI believes that fixed costs for the project will be $$375,000$ per year, and variable costs are $20$ percent of sales. The equipment necessary for production will cost $$2\mathrm{.}85$ million and will be depreciated according to a three$-$year MACRS schedule. At the end of the project, the equipment can be scrapped for $$405,000.$ Net working capital of $$150,000$ will be required immediately. DTI has a tax rate of $22$ percent, and the required return on the project is $13$ percent. What is the NPV of the project?