The New Economy Transport Company $($NETCO$)$ was formed in $1959$ to carry cargo and passengers between ports in the Pacific Northwest and Alaska. By $2021$ its fleet had grown to four vessels, including a small dry$-$cargo vessel, the Vital Spark.

The Vital Spark is $25$ years old and badly in need of an overhaul. Peter Handy, the finance director, has just been presented with a proposal that would require the following expenditures:

Overhaul engine and generators $=$ $$340,000$

Replace radar and other electronic equipment $=$ $$75,000$

Repairs to hull and superstructure $=$ $$310,000$

Painting and other repairs $=$ $$95,000$

Total $=$ $$820,000$

Mr$.$ Handy believes that all these outlays could be written off immediately for tax purposes.

NETCO's chief engineer, McPhail, estimates the post overhaul operating costs as follows:

Fuel $=$ $$450,000$

Labor and benefits $=$ $$480,000$

Maintenance $=$ $$141,000$

Other $=$ $$110,000$

Total $=$ $$1,181,000$

These costs generally increase with inflation, which is forecasted at $2\mathrm{.}5\%$ a year.

The Vital Spark is carried on NETCO's books at a net depreciated value of only $$100,000,$ but could probably be sold $$as is$,$ along with an extensive inventory of spare parts, for $$200,000.$ The book value of the spare parts inventory is $$40,000.$ Sale of the Vital Spark would generate an immediate tax liability on the difference between sale price and book value.

The chief engineer also suggests installation of a brand$-$new engine and control system, which would cost an extra $$600,000.$ This additional equipment would not substantially improve the Vital Spark's performance, but would result in the following reduced annual fuel, labor, and maintenance costs:

Fuel $=$ $$400,000$

Labor and benefits $=$ $$405,000$

Maintenance $=$ $$105,000$

Other $=$ $$110,000$

TOTAL $=$ $$1,020,000$

Overhaul of the Vital Spark would take it out of service for several months. The overhauled vessel would resume commercial service next year. Based on past experience, Mr$.$ Handy believes that it would generate revenues of about $$1\mathrm{.}4$ million next year, increasing with inflation thereafter.

But the Vital Spark cannot continue forever. Even if overhauled, its useful life is probably no more than $10$ years, $12$ years at the most. Its salvage value when finally taken out of service will be trivial.

NETCO is a conservatively financed firm in a mature business. It normally evaluates capital investments using an $11\%$ cost of capital. This is a nominal, not a real, rate. NETCO's tax rate is $21\%.$

QUESTION

Calculate the NPV of the proposed overhaul of the Vital Spark, with ad without the new engine and control system. To do the calculation, you will have to prepare a spreadsheet table showing all costs after taxes over the vessel$$s remaining economic life. Take special care with your assumptions about depreciation tax shields and inflations.