Finite Project [25 points]: A firm has three years remaining on an existing finite project. Management is evaluating an Enhancement Opportunity (new project) that lowers SG&A expenses and reduces the amount of Required Cash necessary to complete this existing project. This Enhancement Opportunity will not materially affect COGS or any other net operating work capital accounts such as A/R, Inventory and A/P. Projected Capital Expenditures (Capex) will be $18 million in 2019, $6 million in 2020, and $4 million in 2021. Assume that all Capex will be spent at the beginning of each year (for instance, the $18 million 2019 Capex will be spent at time = 0). Assume that you recognize operating cash flows (ie. Income statement items) in the middle of the year. Assume that the Net PP&E can be sold for $11 million at the end of 2021, and that you "recoup" (free up) the Required Cash two months after the sale of the equipment. You estimate the WACC of this Enhancement Opportunity at 9.0%, and the relevant incremental tax rate is 21.0%. Calculate the NPV of this project. (amounts in $millions) PROJECTED SG&A EXPENSE Do not invest in the Enhancement Opportunity (base case) Invest in the Enhancement Opportunity (new project) Actual (last year) 2018 2019 30.80 30.80 Projections 2020 61.60 67.58 70.95 56.00 57.35 60.06 2021 PROJECTED REQUIRED CASH Do not invest in the Enhancement Opportunity (base case) Invest in the Enhancement Opportunity (new project) 25.20 49.00 52.70 56.10 25.20 44.80 46.50 47.85 ADDITIONAL DEPRECIATION IF TAKE PROJECT 9.00 7.00 5.00