Question: Messick & Co . is developing a new self - cleaning paint sprayer but is not sure what the demand for this product is .

Messick & Co. is developing a new self-cleaning paint sprayer but is not sure what the demand for this product is. They estimate that it will cost $1 million to develop the product and that FCF will be $200 thousand annually in perpetuity beginning one year from now. Assume the project is fully diversifiable (i.e., beta=0), and therefore, the cost of capital is the risk-free rate of 5%. What is the NPV of this project?

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