Quest Limited is a major retailer of fitness machines and

accessories. It is currently considering investing in a new store in

Melbourne. The Melbourne store will have a lifespan of 20 years and the

new investment will require an initial investment of $30 million. It

will be fully depreciated on a straight-line basis over the life of

the store. The store is expected to generate annual sales of 5,000

fitness machines, and the price of each machine is $2,300. Sales of

accessories will be another $500,000 per year. Operating expenses of

running the store, including labour and rent, will amount to 60 per

cent of the revenues from the fitness machines. The business will need

to invest $2 million in additional working capital immediately, and

recover it at the end of the investment.

The company tax rate is 30%, and the opportunity cost of opening up

the store is 10%. What are the incremental cash flows from this

project at the beginning of the project as well as in years 1-19 and

20? Should the project be approved? Tabulate your answers clearly.