You are considering expanding your product line that currently consists of Lee’s Press-on Nails to take advantage of the fitness craze. The new product you are considering introducing is Press-on Abs. You feel you can sell 100,000 of these per year for 4 years (after which time this project is expected to shut down because forecasters predict looking healthy will no longer be in vogue and looking like a couch potato will). The Press-on Abs would sell for $6.00 each, with variable costs of $3.00 for each one produced. Annual fixed costs associated with production would be $90,000. In addition, a $200,000 initial capital expenditure would be associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated, using the simplified straight-line method, down to zero over 4 years.

The project will also require a one-time initial investment of $30,000 in net working capital associated with the inventory. Finally, assume that the firm’s marginal tax rate is 35 percent. What are the free cash flows to the firm?