Suppose Granola Garden is a nursery (they sell plants) considering developing their own fertilizer made solely from cows fed organic muesli. Before embarking on this project, the company decides to forecast and value the future cash flows to determine whether they should begin producing their specially formulated manure. This project would require an initial investment of $3.5 million dollars. Before beginning their investment, Granola Garden hires a real estate company to find land for their cow farm. This costs $100,000 today and the search for available land is estimated to take one year.

Once the company finds available land, it invests $3.5 million to purchase the land and construct the production facilities. They will generate in the following year $0.60 for each dollar invested. This will then grow at a 25% annual rate for 2 years. Following the rapid growth, Granola Garden predicts the cash flows to grow by only 5% for 20 years after which the novelty will completely wear off and they will discontinue production. Granola Garden has an opportunity cost of capital of 12%.

(a) Draw the timeline for the cash flows up to the end of year 6.

You may leave your answers for the remaining parts of this question as formulas. (b) Calculate the present value for all cash flows until the end of year 4.

(c) Calculate the present value for all remaining cash flows (years 5 and beyond).

(d) What is the (net) present value of the muesli manure?

(e) Your finance department has reviewed the forecasts, and they believe that it isnt accurate to assume the product will be discontinued at the end. Rather, they propose that after 20 years of 5% growth, the revenue will decline by 15% forever. How would this affect the (net) present value of the muesli manure? Your answer must be a specific formula or number