Rehab Center of Merion, Inc., owns an abandoned schoolhouse. The after-tax value of the land is $600,000. The furniture and fixtures of the school have been fully depreciated to an after-tax market value of $50,000. The two options the Rehab Center faces are either to sell the land and furniture and fixtures or to convert the building into a 40-bed free-standing rehabilitation hospital. To refurbish and renovate the facility would cost $4,000,000. The new building and equipment would be depreciated on a straight-line basis over a ten-year life to a $500,000 salvage value. At the end of ten years, the land could be sold for an after-tax value of $3,000,000. The new rehab facility lists its pro forma income statement below for the next ten years. Net working capital will increase at a rate of $15,000 per year over the life of the project. Rehab Center of Merion, Inc., has a 30 percent tax rate and a required rate of return of 7 percent. Use both the NPV technique and IRR method to evaluate this project. (Hint: see Appendices C, D, and E.)

Pro forma income statement	Years 1-5	Years 6-10
Net patient revenues / year	$7.5 million / year	$9.0 million / year
Operating expenses (excludes depreciation  expense) / year	$7.0 million / year	$8.0 million / year Â