Jobs R Us, Inc. is a recruiting firm that specializes in post – college placement in the finance industry. Its clients are currently concentrated in the North-Eastern United States. It is contemplating expanding into the Mid-West and accesses the risk of the new venture to be similar to that of the existing company.
Your RBS summer intern created a summary for Jobs R Us, Inc. potential in the Midwest market over the next 5 years:
Revenue is expected to be $7,500,000 in the first year and grow 8% per year for the next 4 years.
Variable cost is expected to be 45% of revenue.
Fixed cost (including depreciation) is expected to be $1,250,000 of revenue each year.
Depreciation expense is expected to be $75,000 each year.
Maintenance capex is expected to be $150,000 each year.
Change in Net working capital is expected to be $100,000 in year 1, growing at the same percentage as revenue thereafter.
Taxes are 40%.
Initial investment today is estimated to be $2,500,000.
After tax cost of capital is 12%
What is the NPV?
(answer in millions. round to 1 decimal)