A company has undertaken a feasibility study (which cost $20,000) to evaluate the viability of starting up operations overseas.

A company has undertaken a feasibility study (which cost $20,000) to evaluate the viability of starting up operations overseas. The net present value of future earnings for the overseas operation is estimated to be $5m and the present value of variable costs is $2m. The fixed cost associated with the project has a present value of $500,000. In order to fund this project, the company will borrow $1.75m with interest of 12% pa paid quarterly. If the company decides to go ahead with this project it will cannabilise existing sales with a present value of $700,000.  What is the NPV of this project for the firm?

NOTE: All figures given are already present values, all you need to do is add or subtract the relevant numbers.

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