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Consider a project to supply 608,000 postage stamps to the U.S. Postal Service for the next 5 years. You have an idle parcel of land available that cost $760,000 five years ago; if the land were sold today, it would net you $912,000, aftertax. The land can be sold for $1,500,000 after taxes in 5 years. You will need to install $2,356,000 in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's 5-year life. The equipment can be sold for $456,000 at the end of the project. You will also need $469,000 in initial net working capital for the project. All net working capital will be recovered when the project ends. The price of the stamp is $0.42 and the production costs are $0.38 per stamp, and you have fixed costs of $608,000 per year. Your tax rate is 30 percent and your required return on this project is 11 percent.

a) What is the gross profit of this project for the next 5 years? (years 1-5).

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