A bicycle manufacturer currently produces $391,000$ units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $$2\mathrm{.}10$ a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct$$ in$-$house production costs are estimated to be only $$1\mathrm{.}60$ per chain. The necessary machinery would cost $$292,000$ and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a$$ ten$-$year straight$-$line depreciation schedule. The plant manager estimates that the operation would require $$43,000$ of inventory and other working capital upfront$($year $0),$ but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $$21,900.$ after ten years are $$21,900$

If the company pays tax at a rate of $20\%$ and the opportunity cost of capital is $15\%,$ what is the net present value of the decision to produce the chains in$-$house instead of purchasing them from the supplier?

Project the annual free cash flows $($FCF$)$ of buying the chains.

The annual free cash flows for years $1$ to $10$ of buying the chains is $9$

$($Round to the nearest dollar. Enter a free cash outflow as a negative number.$)$

If the company pays tax at a rate of $20\%$ and the opportunity cost of capital is $15\%,$ what is the net present value of the decision to produce the chains$$ in$-$house instead of purchasing them from the$$ supplier?

Part $1$

Project the annual free cash flows $($FCF$)$ of buying the chains.

The annual free cash flows for years $1$ to $10$ of buying the chains is $$$$($Round to the nearest dollar. Enter a free cash outflow as a negative$$ number.$)$