Suppose you are a summer intern at the Kowloon East Technology, Inc. (KEST), a manufacture of voice recognition and facial recognition products. The company hired a marketing firm to analyze their new facial recognition product, at a cost of $75,000. An excerpt of the marketing report is as follows:

The industry will have a rapid expansion in the next four years. With the brand name recognition that KEST brings to bear, we feel that the company will be able to sell 5,100, 5,800, 6,400, and 4,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of KEST, we feel that a premium price of $425 can be charged for each unit. Due to the rapid development in technology, we also feel at the end of the four-year period, sales of the current model should be discontinued.

The company bought some land three years ago for $1.9 million and the land can be used for this project. Based on a recent appraisal, the company believes it could sell the land for $2.1 million on an after-tax basis. In four years, the land could be sold for $2.5 million after taxes. Introducing the new product will also reduce the sales of existing voice recognition products by $0.5 million as of todays value. KEST believes that fixed costs for the project will be $345,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $2.65 million and will be depreciated according to a three-year MACRS schedule. The yearly MACRS percentage is 33.33%, 44.45%, 14.81%, and 7.41%. At the end of the project, the equipment can be scrapped for $395,000. The project requires $150,000 in additional inventory and will increase accounts payable by $25,000 immediately, and all are expected to be fully recovered at the end of the project. KEST has a tax rate of 22 percent, and the required return on the project is 13 percent. What is the net present value of the project? Would you recommend accepting the new product line?