Your firm is evaluating a project, which will generate an expected revenue of $26M one year from today. The operating costs to produce the goods are expected to be $9M. The revenue and costs are expected to grow at a 2% rate, forever. The project will require investing $16M in machinery. You will have to replace this machinery every 8 years at a cost of $16M (the old machine will have no resell value). You will depreciate each machine down to a final book value of zero dollars over the life of the machine. Your firm maintains a constant debt-equity ratio of 0.20. The firms equity beta is currently 1.5 and the debt is considered risk-free. The expected return of the market is 6% and the risk-free rate is 2%. The current tax rate is 0%.

a. What is the NPV of the project?

b. In a surprise move, the government has changed the tax rate to 20%. What is the new NPV of the project?