A beauty product company is developing a new fragrance named Happy Forever. There is a probability of 0.50 that consumers will love Happy Forever, and in this case, annual sales will be 1.06 million bottles; a probability of 0.41 that consumers will find the smell acceptable and annual sales will be 173,000 bottles; and a probability of 0.09 that consumers will find the smell unpleasant and annual sales will be only 45,000 bottles. The selling price is $39, and the variable cost is $8 per bottle. Fixed production costs will be $1.06 million per year, and depreciation will be $1.16 million. Assume that the marginal tax rate is 40 percent. What are the expected annual incremental after-tax free cash flows from the new fragrance?

Annual incremental cash flows

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