ABC Hardware is a hardware store, selling both large equipment and conventional hardware. The store generated $500,000 in after tax operating income from revenue of $ 5 million last year; large equipment accounted for 40% of the revenues and 60% of after-tax operating income. ABC is considering opening an equipment service center on site and has the following information

The initial investment in the service center is expected to be $1 million, depreciable straight line over five years to a salvage value of zero.

The service center is expected to generate $400,000 in revenues each year for the next 5 years and the costs of personnel and materials is expected to be $150,000 each year.

The tax rate is 40%, the cost of capital is 10% for equipment servicing.

(a) Estimate the NPV of the equipment service center