Zip Inc is considering investing in a new product line to complement its existing products. The new product line is expected to have a 3-year life. The project manager has collected the following information for your consideration:

1. Initial investment (new equipment): $300,000,000

2. All initial investment costs are depreciated straight-line at a rate of 30% p.a.

3. Estimated sales revenue (per year): $120,000,000 in year one, 200,000,000 in year two, and 260,000,000 in year three.

4. Cost of goods sold is estimated to be 30% of the sales revenue per year.

5. Administration expenses (per year): $60.000,000

6. Working capital each year is forecasted to be 15% of sale revenue of the following year.

7. Company tax rate: 30%

Additional information:

At the end of the project the company will be able to sell the new equipment (initial investment) for $50,000,000.

The company has just spent $500,000 in advertisements.

This project will boost the sales of the company's existing products by $100.000.000 per year.

All cash flows are stated in nominal terms.

The manager believes a discount rate of 12% p.a. (nominal) is appropriate for this project. Inflation rate is 2% p.a.

a) Determine the Operating cash flow each year of the project

b) Determine the change in working capital requirements each year of the project

c) Determine the net cash flow associated with the sale of the new equipment at the end of the project

d) Determine the net cash flow each year for the project

e) What is the NPV of the project? Should the company proceed with this investment?