Shubenacadie Inc. is currently considering a project with a 5-year life that it believes has the potential to return the company to profitability. Based on the results from a marketing survey that cost the firm $100,000, Shubenacadie is convinced that there is a market for its proposed new product and is now ready to undertake a capital budgeting analysis of the proposed project. The following information has been collected for the purpose of determining the project's net present value (NPV).

The project will require an initial investment of $5 million in new equipment and an investment of $250,000 in additional net working capital that will be released at the conclusion of the project. The cost to install the new equipment is estimated to be $75,000. The equipment is estimated to have a 5-year useful life with an expected salvage value at the end equal to 10% of its original purchase price. For accounting purposes, the new equipment will be depreciated on a straight-line basis. The equipment will be installed in a vacant building that Shubenacadie purchased last year for $1 million. The building, which has no alternative use, has a current market value of $1.25 million and is expected to have a market value of $1.5 million at the end of the project.

It is estimated that the project will generate net revenues before tax of $3 million per year. Finally, Shubenacadie's marginal tax rate is 32% and its weighted average cost of capital is 11%. The applicable CCA rate on the new equipment is 12½%.

Required

a.  Estimate the initial after-tax cash outlay for the proposed project.

b.  Estimate the net present value associated with the proposed project. Ignore CCA tax shields on the building.

c.  Should Shubenacadie Inc. go ahead with this project? Briefly explain.

d. Given that Shubenacadie presently has 5 million common shares outstanding that are trading at $11.50 per share, what will be the new price per share if the firm accepts this project, assuming the markets are efficient?