A bicycle manufacturer currently produces 399,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $ 2.10 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 $ 1.50 per chain. The necessary machinery would cost $ 267,000 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 additional working capital of $56,000 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 $20,025. If the company pays tax at a rate of 35 % 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?

The annual free cash flow of 1-10=

The NPV of buying the chains from FCF=

The initial FCF of producing the chains=

The FCF of producing the chains years 1-9=

The FCF of year 10 producing the chains=

The NPV of producing the chains from FCF

The net present value of producing the chains in house instead of from the supplier=