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Problem 8-38 Project Analysis and Inflation Sony International has an investment opportunity to produce new stereo HDTV. The required investment on January 1 of this year is $150 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $525 per unit, in real terms, and will not change over the life of the project. Labor costs for Year 1 will be $15.75 per hour, in real terms, and will increase at 2 percent per year in real terms. Energy costs for Year 1 will be $4.00 per physical unit, in real terms, and will increase at 3 percent per year in real terms. The inflation rate is 4 percent per year. Revenues are received and costs are paid at year-end. Refer to the following table for the production schedule: Year 1 Year 2 Year 3 Year 4 Physical production, 145,000 155,000 175,000 165,000 in units Labor input, in hours 1,150,000 1,230,000 1,390,000 1,310,000 Energy input, in physical 240,000 260,000 280,000 265,000 units The real discount rate for the company is 5 percent. Calculate the NPV of this project. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $

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