You are evaluating a 4-year investment opportunity in a new ice-skating rink in the Bishop Arts neighborhood. The purchase price is $8.4M. The capitalized value of the asset (i.e., its beginning book value) will be depreciated down to an end-of-life book value of 0. The anticipated selling price of machine is 1M. The ice rink is expected to provide cash sales of $14.1M per year, and will require cash expenditures of $9.3M each year. Also, at t=0, working capital will rise by $420K; at termination, this change will all be reversed. The relevant marginal tax rate is 30%. The appropriate discount rate is 8%.

a). (3 points) Identify all relevant cash flows and then calculate cash flows for t=0, t=1, t=2, t=3, and t=4.

b). (2 points) Calculate the NPV and profitability index of the project.