It's a very long question. I have to determine the cash flow for each year of a project proposal to determine the NPV of the project. My problem is at the part where we have the building we're going to use and will lose rental income of $300,000. Do i subtract that from sales each year? That is my question.

Blair Bookstores is thinking about expanding its facilities. In considering the expansion, Blair's finance staff has obtained the following:

-The expansions will require the company to purchase today(t=0) $5 million of equipment. The equipment will be depreciated over the following four years at the following rate:
t=1 33%
t-2 45%
t=3 15%
t=4 7%

-The expansion will require the company to increase its net operating working capital by $500,000 today (t=0). This net operating working capital will be recovered at the end of four years (t=4).
-The equipment is not expected to have any salvage value at the end of four years.
-The company's operating costs, excluding depreciation, are expected to be 60 percent of the company's annual sales.
-The expansion will increase the company's dollar sales. The projected increases, all relative to the current sales are:
Year 1: 3.0 million
Year 2: 3.5 million
Year 3: 4.5 million
Year 4: 4.0 million

(For example, in Year 4 sales will be $4 million more than they would have been had the project not been undertaken). After the fourth year, the equipment will be obsolete, and will no longer provide any additional incremental sales.

-The company's tax rate is 40 percent and the company's other divisions are expected to have positive tax liabilities throughout the projects life. .
-If the company proceeds with the expansion, it will need to use a building that the company already owns. The building is fully depreciated; however, the building is currently leased out. The company receives $300,000 rental income (before tax) each year (payable at year end). If the company proceeds with the expansion, the company will no longer receive this rental income.
-The WACC for the project is 10 percent