You have been hired as a capital budgeting analyst by a sporting goods firm that manufactures athletic shoes and has captured 10% of the overall shoe market. (The total market is constant and worth $100 million a year.) The fixed costs associated with manufacturing the shoes amount to $2 million a year and variable costs are 40% of revenues. The companys tax rate is 40%. The firm believes that it can increase its market share for the next 10 years to 20% (but after 10 years, its market share will be back to 10% of the overall market) by investing $10 million now in a new distribution system and spending $1 million a year in additional advertising. The system can be depreciated over its 10-year life to a salvage value of zero. The company proposes to continue to maintain working capital at 10% of annual revenues (that is, the company currently holds working capital at 10% of the current annual revenues, but, in the beginning of the project, it needs to increase its working capital to support the increase in the market share and then reduce its working capital after the project is over). The discount rate to be used for this project is 8%. Do not consider other factors that are not stated here.

(a) What is the NPV of this project?

(b) How much would the firms market share have to increase for you to be indifferent to taking or rejecting this project?