You have spent $25,000 researching a location for a new restaurant. The restaurant requires an immediate capital expenditure of $300,000, which can be depreciated over 30 years. You also expect to incur an immediate working capital expenditure of $100,000, which can be recovered at the end of the project, in 30 years. You expect the new restaurant to generate $150,000 per year in annual revenues for the life of the project and have annual operating costs of $75,000. After 30 years, you expect to sell the restaurant for $200,000.

You currently own four other restaurants, which currently generate revenues of $250,000 and operating costs of $100,000. Whether you open the restaurant or not you expect these revenues and operating costs to remain constant through t=1. After that, however, if you decide to open the new restaurant, you expect this operating profit to decline by 6% per year for the next 30 years. Otherwise, you expect the operating profits of your other restaurants to remain constant for the next 30 years. Whether or not you take the project you expect to close all four of your other restaurants in 30 years.

You have identified a publicly traded company that is all equity and has risks identical to those your restaurant faces. That firm has a beta of 1.2. Compute the NPV of opening a new restaurant if your tax rate is 20%, the risk-free rate is 4%, your leverage is 0%, the expected market returns are 9%, and the standard deviation of market returns are 25%.