You have recently been hired as a financial advisor for Aura Intelligence, Inc. The company is considering investing in a new affordable cell phone that has improved video quality, battery life, and durability relative to previous editions. 

Following discussions between the sales and marketing departments, the company has decided to price the new phone at $80. The company estimates that variable costs for producing each phone are $35. The sales department estimates that the company can sell 550,000 units in the first year of the project’s life, and the firm expects to sell an additional 20,000 units each year (i.e., 570,000 units in the second year, 590,000 units in the third year, etc.) until the project is wrapped up at the end of the fifth year. 

Further assume that the selling price per phone will decrease by $5 per year given the release of newer versions. This $5 decrease is a reduction from the previous year. Variable costs per phone are not expected to change.

Fixed costs for the project are expected to be $6 million per year. Moreover, the company will need to invest a total of $30 million in fixed assets that will be 100% depreciable on a straight-line basis over the next 5 years. The company will also require an additional investment of $10 million in net working capital, and 100% of this investment will be recovered at the end of the fifth year.

You have also collected the following information. 

The risk-free rate in the market is 1.05 percent, the company has a beta of 1.51, and the expected market return is 9.90 percent. There are 90,000 bonds outstanding with each bond currently trading at 96.2 percent of face value. The firm’s outstanding bonds each have a face value of $1,000, mature in 17 years, have a coupon rate of 6.4 percent, and pay interest semi-annually. The firm also has 450,000 shares of common stock outstanding that are trading at $108 per share. Finally, the firm has 220,000 shares of 9.5% preferred stock outstanding that are priced at $92 per share. The preferred stock has a face value of $100 each. Assume the corporate tax rate is 21 percent.

What is the net present value of this project?