7. Jerry Seinfeld is a sell-side analyst with Cameron Securities. Seinfeld covers the pharmaceutical industry. One of the companies he follows, Theranos Inc., is evaluating a regional distribution center. The financial predictions for the project are as follows: o Fixed capital outlay is $1.50 billion. o Investment in net working capital is $0.40 billion. o Straight-line depreciation is over a six-year period with zero salvage value. o Project life is 12 years. Additional annual revenues are $0.10 billion. o Annual cash operating expenses are reduced by $0.25 billion. o The capital equipment is sold for $0.50 billion in 12 years. o Tax rate is 40 percent. o Required rate of return is 12 percent. Seinfeld is evaluating this investment to see whether it has the potential to affect Theranos' stock price. Simpson estimates the NPV of the project to be $0.41 billion, which should increase the value of the company. Seinfeld is evaluating the effects of other changes to his capital budgeting assumptions. He wants to know the effect of a switch from straight-line to accelerated depreciation on the companys operating income and the projects NPV. He also believes that the initial outlay might be much smaller than initially assumed. Specifically, he thinks the outlay for fixed capital might be $0.24 billion lower, with no change in salvage value.

a) Estimate the after-tax operating cash flows for the years 1 through 12.

b)Estimate the initial outlay and the terminal year non operating cash flow

c) What is the project's NPV and IRR?

d) What would be the effect of switch from straight-line to accelerated depreciation on project NPV?