1) You are financial managers of a company that produces printers. Currently, you are using NPV method to evaluate a 10-year project that will produce a new model. The WACC is 10% and the tax rate is 21%.

- The project needs a set of machines that are worth $5 million. The company uses a 10-year straight-line depreciation method so that 100% of fixed assets will be depreciated by year 10. The fixed asset is estimated to be sold for $0.5 million at the end of year 10.

- In the past two years, the company spent $800,000 in R&D to develop the new model.

- The project will be partially financed with debt, and the interest to be paid every year would be $100,000.

- If the new project is taken, it is expected that the current inventory level will increase by $1,500,000, account receivable will increase by $1 million, account payable increases by $800,000, and the minimum cash balance will increase by $0.5 million.

- The net sales from this project will be $8 million per year, of which 20 percent will be from the lost sales of existing products. The variable costs of the production will be 30% of the net sales.

- The project will require hiring a new manager, who will cost $100,000 per year. In addition, the firm needs to rent a new office for $50,000 a year.

- Currently, the overhead of the firm is $500,000. And the accounting department will allocate 20% of this amount to the new project. How much is the initial investment at t=0?

Question 1 options:

8,000,000

6,700,000

7,200,000

7,500,000

8,800,000

2) How much is the initial investment at t=0?

3) How much is the operating cash flow for the first year?

4) How much is the non-operating cash flow at the end of the last year?