The Castello Soninno winery is looking for the best bottling and promotion project for its Sangiovese Grosso vineyard. It is considering bottling a new Brunello di Montalcino over the course of the next 5 years and would like to calculate the Adjusted Present Value of the venture. A new bottling unit is required, which will be financed via a loan and will be fully depreciated by the end of production, where the company will receive a tax-free subsidy for its replacement. Some older equipment will also be used, which will be also sold at the end. They have been fully depreciated but have a market value as below. The loan ends with the project but will be refinanced instantly using capital from other ongoing firm activities, leaving the debt ratio unchanged. Depreciation is straight-line, the firm has other profitable activities, the debt ratio is common and constant for the project and the firm and all cash flows occur at the end of the year. The project specification is as follows: Project duration: 5 years, Y1-Y5 (today is the last day of Year 0) Production volume: 25,000 bottles per annum (p.a.) Price per bottle: 35 EUR (today), constant in real terms for the project's duration Bottling machinery: 175,000 EUR, 100,000 subsidy Labour costs: 260,000 (real) p.a., 5% increase (real) p.a. Cultivation costs (petrol, fertilisers etc): 370,000 (real) p.a., 13% increase (real) p.a. Old equipment value: 50,000 (nominal) current, 38,000 (real) sale Tax rate: 40%, Required return on equity: 16%, Bank lending rate: 7% (nominal), Inflation: 9%, Target debt ratio: 45% Calculate the project's APV using nominal cash flows. [10 points]