Your apple orchard business is moving (potentially) into the avocado business. You are evaluating the purchase of Sunshine Avocadoes. The acquisition requires a capital investment of $30 million and an initial working capital allocation of $5 million (to be returned at the end). The other data are:

• Sales each year of $4,000,000
• Annual cost of goods sold (including fixed and variable) of $900,000
• Depreciation is straight line to zero
• The taxation rate is 30%.
• Your firm has spent $150,000 researching the deal
• If you purchase Sunshine Avocadoes you will add an additional $250,000 to your annual marketing spend.
• The project's life is 15 years.
• The discount rate is 17%.

Will this project create market value for your firm's owners?

a.

Yes, because the net present value is $335,609.

b.

Yes, because the net present value is $5,009,335.

c.

No, because the net present value is - $4,508,222.

d.

No, because the net present value is - $20,709,293.

e.

No, because the net present value is - $56,789,332.