The Riker Chrome Plating Company is currently operating out of Pittsburgh, Pennsylvania and has been moderately successful in building a dedicated clientele throughout the north and mideastern portion of the country. Riker now is considering expanding its facilities to another region. Riker has land located in Macon, Georgia it acquired some years ago at a cost of $455,000 and now wants to utilize the land for purposes of accomplishing its expansion. The upfront cost of constructing the building is estimated to be $1,850,000 and it would take a year to complete the construction and begin production. The tubs, chemicals, electrical charging equipment and fabrication equipment necessary to start production would cost $1,496,000 which would be paid for at the start of production. Both the plant and equipment would be depreciated on a straight-line basis over the 20-year life of production, for which at the end of that time, the property and plant could be sold for $750,000 and the chroming equipment could be scrapped for $80,000. Estimated sales from production would be $1 million per year with 9 percent of that going to cover variable costs. Annual fixed costs are estimated to be $50,000. The project will require an unrecoverable $10,000 of net working capital at the start of production. The land could alternatively be sold to a buyer willing to pay $1.78 million. Riker's requires a 12 percent rate of return and is subject to a tax rate of 34 percent.

1. If Rikers management decides to go forward with taking on the construction, what is the proper cash flow amount to use as the initial investment? Show your computation.

2. If Rikers management selects option 1, what are the proper cash flow amounts (assume endof-year cash flows) that will occur over each of the 20 years of production? Show your computations.

3. What is the net present value of taking on the project? Show your computations.

4. From a strictly financial point of view, would it be prudent for Riker to sell the land? Carefully explain your reasoning.