The Florina Mining Company has constructed a town at Jungilla, near the site of a rich mineral discovery in a remote part of Australia. The town will be abandoned when mining operations cease after an estimated 10 years. The following estimates of investment costs, sales, and operating expenses relate to the project to supply Jungilla with meat and agricultural produce over the ten year period by developing nearby land.

(a) Investment in land is $2million dollars, farm buildings $400,000, and farm equipment $800,000. The land is expected to have a realisable value of $1 million in ten years' time. The building have an estimated useful life of 20 years, at which time their residual value would be zero, and they are to be depreciated on a straight line basis for tax purposes based on this life. The residual value of the buildings after ten years is $100,000. The farm equipment has an estimated life of ten years and a zero residual value. The equipment is to be depreciated on a straight line basis.

(b) Investment of $500,000 in current. This will be recovered at the end of the venture.

(c) Annual cash sales are expected to be $6 million.

(d) Annual operating expenses are expected to be $4.4 million.

(e) Assume tax is paid one year after the year of income.

Is the project worth doing given that the after tax cost of capital is 10% pa, with a company tax rate of 30%?