Uftin Co is a large company which is listed on a major stock market. The company has been evaluating an investment proposal to manufacture Product K3J. The initial investment of $1,800,000 will be payable at the start of the first year of operation. The following draft evaluation has been prepared by a junior employee.

The junior employee also provided the following information:

1. Relevant fixed costs are forecast to be $150,000 per year.
2. Sales and production volumes are the same and no finished goods inventory is held.
3. The corporation tax rate is 22% per year and tax liabilities are payable one year in arrears.
4. Uftin Co can claim tax allowable depreciation of 25% per year on a reducing balance basis on the initial investment.
5. A balancing charge or allowance can be claimed at the end of the fourth year.
6. It is expected that selling price inflation will be 4.2% per year, variable cost inflation will be 5% per year and fixed cost inflation will be 3% per year.
7. The investment has no scrap value.
8. The investment will be partly financed by a $1,500,000 loan at 10% per year.
9. Uftin Co has a weighted average cost of capital of 12% per year.