Forecasted future cash flows.

Novelty Ltd manufactures and sells small plastic products to global wholesalers from its base in South Asia. Novelty, Ltd is evaluating a new product, with a three-year life, that will require investment in new, dedicated equipment and rental of additional space. Novelty, Ltd normally allocates sales and administrative costs as overhead for all products based on a percentage of sales revenue. Product sales of this type normally peak in the second year and drop dramatically thereafter. The following table summarises data values for the evaluation of the new product.

Required:
Estimate after tax cash flows for the life of the new product.

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Novelty, Ltd data values Dedicated e uipment E uipment life E uipment salva e value ax rate Discount rate Allocated sales and administrative costs Existin space needed Existin space cost Ne space needed Ne rental cost Variable costs Forecasts for the product life in year: nit sales base forecast Sales price per unit 650,000 3 years 50,000 per year 38 8 20 of revenue 1,000s meters 30.00 per s meter 1,200 s meters 40 00 per s meter 2.00 per unit 1 2 3 300,000 600,000 200,000 275 250 3.00