Sony International has an investment opportunity to produce a new 100-inch widescreen TV. The required investment on 1 January of this year is $32 million. The firm will depreciate the investment to zero using the straight-line method over 4 years. The investment has no resale value after completion of the project. The firm is in the 34 per cent tax bracket. The price of the product will be $400 per unit, in real terms, and will not change over the life of the project. Labour costs for year 1 will be $15.30 per hour, in real terms, and will increase at 2 per cent per year in real terms. Energy costs for year 1 will be

$5.15 per physical unit, in real terms, and will increase at 3 per cent per year in real terms.

The inflation rate is 5 per cent per year. Revenues are received and costs are paid at yearend.

Refer to the following table for the production schedule:

The real discount rate for Sony is 8 per cent. Calculate the NPV of this project.

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Physical production, in units Labour input, in hours Energy input, physical units Year 1 100,000 2,000,000 200,000 Year 2 200,000 2,000,000 200,000 Year 3 200,000 2,000,000 200,000 Year 4 150,000 2,000,000 200,000