McCormick & Company is considering a project that requiresan initial investment of $24 million to build a new plant andpurchase equipment. The investment will be depreciated as amodified accelerated cost recovery system (MACRS) seven-year classasset. The new plant will be built on some of the company's land,which has a current, after-tax market value of $4.3 million.

The company will produce bulk units at a cost of $130 each andwill sell them for $420 each. There are annual fixed costs of$500,000. Unit sales are expected to be $150,000 each year for thenext six years, at which time the project will be abandoned. Atthat time, the plant and equipment is expected to be worth $8million (before tax) and the land is expected to be worth $5.4million (after tax).

To supplement the production process, the company will need topurchase $1 million worth of inventory. That inventory will bedepleted during the final year of the project. The company has $100million of debt outstanding with a yield to maturity of 8 percent,and has $150 million of equity outstanding with a beta of 0.9. Theexpected market return is 13 percent, and the risk-free rate is 5percent. The company's marginal tax rate is 40 percent.

What will be the value of the plant and equipment fortax purposes in year six? Will it be sold for a gain or a loss, andwhat will the tax effect be?