Megalodon Inc. is embarking on an exciting new project.It has invested a lot of time and money into researching the viability of the new "Alfa Project".To secure exclusivity to a proprietary design the CEO of Megalodon has placed a non-refundable deposit of $300,000.The cost of the deposit has been expensed.

If the "Alfa Project" equipment is purchased it would require an immediate capital outlay of $1,500,000.The supplier has also advised that a significant upgrade will be available at the end of year 3.The upgrade will cost an additional $300,000. If Megalodon goes ahead with the project they will also commit to the purchase of the upgrade.

Megalodon will use an empty storage warehouse they currently have possession of to house the equipment.Megalodon is aware they could lease the warehouse to a local distribution company for $50,000 per year.

The equipment will be put into use immediately but will not begin to generate revenue until year 3.During years 1 through 3 cash expenses will be incurred in the amount of $300,000 annually.The project will generate yearly revenues of $600,000 for years 3 - 15 inclusive. Cash expenses would be reduced to $200,000 per year after the year 3 upgrade and will remain at that amount until the end of the project in year 15.

The project will require $60,000 in working capital to operate at its peak performance.

All the equipment could be salvaged for $50,000 when the project is completed at the end of year 15.

Additional information

CCA Rate:30%

Tax Rate:28%

WACC:12%

Required:

Using the NPV approach, determine if Megalodon should proceed with this investment?Show all of your calculations.