$1)$ Remark: all the dollar value below should be considered $$fair $($true$)$ market values$$ i$.$e$.,$ any prospective buyer$/$seller would gladly pay them

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You were able to identify a potential project for your client, a very profitable producer of farming equipment. To compensate you for your valuation, the company is required to pay you a one time $$ tax deductible $$ fee of $$50,000$ at T$=0.$

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You estimated that $6,600$ units of a new equipment could be sold annually over the next $8$ years, at a price of $$7,750$ each. Variable costs per unit are $$4,300,$ and fixed costs total $$5\mathrm{.}35$ million per year.

Start$-$up costs include $$20$ million to build production facilities $($to be paid in cash$),$ $$1\mathrm{.}25$ million for land $($to be paid in cash$),$ and $$3\mathrm{.}90$ million in initial net working capital $($NWC$)$ to be paid in cash.

NWC levels are expected to increase by $$40,000$ throughout the life of the project $($that is$,$ every year, the NWC level is supposed to be $$40,000$ higher than the previous year$$s level$).$

The $$20$ million facility will be depreciated on a straight$-$line basis to a value of zero over $10$ YEARS. $($note: even though the project takes only $8$ years, it is very well possible that the time of depreciation may be completely different from the maturity of the project.$).$At the end of the projects life, the facilities $($including the land$)$ will have estimated market value of $$5\mathrm{.}15$ million. The value of the land is not expected to change during the eight year period, and the land should not be depreciated.

The tax rate is $21\%$ and the required rate of return is $18\%.$