Yummy Coffee, a famous west-coast chain of coffee shops, is considering moving east, opening 100 shops from Boston to Key West. The plan is to spend about $9 million on billboard and magazine advertising in a blitz campaign at the end of 2018, with shops opening the first day of the year 2019.

Yummy Coffee does not franchise its shops; while it usually leases the location, the employees are Yummy Coffee employees. It will spend $3 million training new employees to operate those shops during late 2018. The cost of providing each location with equipment and decorating the shop is about $100,000, for a total cost of $10 million paid at the begining of 2018. No significant working capital investment is involved (all transactions are cash, and inventories more-or-less offset payables).

The gross margin (sales revenues less rent, utilities, depreciation, labor and material costs) from a typical start-up Yummy Coffee shop are $30,000 and they grow at a rate of about 5% per year. Each shop will operate as a going concern (in perpetuity). Assume that the annual cost of maintaining and upgrading equipment and fixtures (annual capital expenditures) is approximately equal to annual depreciation charges.

Yummy Coffee has an equity beta of 0.8 and 20% debt in its capital structure. The company has risk-free debt that costs 6% before taxes, and the expected rate of return on the market is 12%. The marginal tax rate is 20%. Yummy Coffee will finance the new project with 40% debt. Assume that the CAPM holds and that you are performing the valuation at the beginning of 2018.

What is the NPV of this investment project?