1. Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 3,000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for 1,000 each and have a variable cost of $ 500 each. The annual fixed costs associated with production would be $ 1,500,000. In addition, there would be a $ 5,000,000 initial expenditure 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 5 years. This project will also require a one-time initial investment of $ 1,100,000 in net working capital associated withinventory, and that working capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 31percent. a. What is the initial outlay associated with this project? b. What are the annual free cash flows associated with this project for years 1 through 4? c. What is the terminal cash flow in year 5 (that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the project)? d. What is the project's NPV given a required rate of return of 9 percent?

2. DO ALL PARTS AND BOTH QUESTIONS OR I RATE DOWN

Ch 118 - Cash Flow and Other CB BA380SP2021 04/08/21 12:31 PM Homework: Ch 11a - Cash Flow and Other CB Topics Save Score: 0 of 3 pts 3 of 5 (3 complete) HW Score: 40%. 4 of 10 pts Problem 11-7 (similar to) Question Help (Calcinating free cash rows) At present, Solartech Skateboards is considering expanding its product line to include gas-powered Skateboards; however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 10,000 of these per year for 10 years (after which time this project is expected to shut down because solar powered skateboards will become more popular), you also recognize that there is a 25 percent chance that you will only sell 1,000 and also a 25 percent chance you will soll 17.000. The gas skateboards would sell for $130 each and have a variable cost of $45 each. Regardless of how many you sell, the annual fixed costs associaled with production would be $140,000. In addition, there would be an initial expenditure of $900 (CO 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 10 years Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the level of sales. This project will require a one time initial investment of $30,000 in networking capital, and that working capital investment will be recovered when the project is shul down. Finally, assume that the firm's marginal tax rate is 36 percent a. What is the initial outlay associated with the project b. What are the annual free cash flows associated with the project for years 1 through under each sales forecast? What are the expected annual free cash flows for years 1 through 92 c. What is the terminal cash flow in year 10 (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the project? d. Using the expected free cash flows, what is the project's NPV given a required rate of refum of 11 percent? What would the project's NPV be if 10,000 skateboards were sold? a. What is the initial outlay associated with this project? s (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer. ? 10 parts remaining Clear A Check Answer 1 Type here to search O 100 12:31 PM 4/8/2021 Ch 118 - Cash Flow and Other CB BA380SP2021 04/08/21 12:31 PM Homework: Ch 11a - Cash Flow and Other CB Topics Save Score: 0 of 3 pts 3 of 5 (3 complete) HW Score: 40%. 4 of 10 pts Problem 11-7 (similar to) Question Help (Calcinating free cash rows) At present, Solartech Skateboards is considering expanding its product line to include gas-powered Skateboards; however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 10,000 of these per year for 10 years (after which time this project is expected to shut down because solar powered skateboards will become more popular), you also recognize that there is a 25 percent chance that you will only sell 1,000 and also a 25 percent chance you will soll 17.000. The gas skateboards would sell for $130 each and have a variable cost of $45 each. Regardless of how many you sell, the annual fixed costs associaled with production would be $140,000. In addition, there would be an initial expenditure of $900 (CO 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 10 years Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the level of sales. This project will require a one time initial investment of $30,000 in networking capital, and that working capital investment will be recovered when the project is shul down. Finally, assume that the firm's marginal tax rate is 36 percent a. What is the initial outlay associated with the project b. What are the annual free cash flows associated with the project for years 1 through under each sales forecast? What are the expected annual free cash flows for years 1 through 92 c. What is the terminal cash flow in year 10 (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the project? d. Using the expected free cash flows, what is the project's NPV given a required rate of refum of 11 percent? What would the project's NPV be if 10,000 skateboards were sold? a. What is the initial outlay associated with this project? s (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer. ? 10 parts remaining Clear A Check Answer 1 Type here to search O 100 12:31 PM 4/8/2021