A box producers can go into production for an initial investment in equipment of $9m. The equipment will be depreciated straight-line over 3 years to a salvage value of zero. The company assumes that the equipment has no salvage value when allocating the depreciation expenses but later find out that the equipment can be sold for $2m at the end of year 4. company also needs to spend 0.2m to uninstall and clear up the equipment in year 4. The firm's working capital policy is as follow: (i) give out 3 months credit to her clients and (ii) maintained inventory at a level of 20% of next year's forecast sales. The firm estimates production costs equal to $2/unit and believes that the box can be sold for $6 each. The project will come to an end at the end of year 3, when the box becomes obsolete in style. The tax rate of the firm is 40% and the required rate of return on the project is 10%. Sales forecasts are [in million (m) of unit]: 1m units, 1.2m units and 1.5m units for years 1 to 3 respectively.

(a) What are the cash flows generated from operating for each year (yrs. 0 to 4)? Present the figures in a profit and loss table (same as your assignment).

(b) What are the (i) total working capital, (ii) change in working capital and (iii) the cash flows generated from change in working capital for each year (years 0 to 4)?

(c) (i) What are the cash flows for company in the 4th year generated from the sales of equipment and project end clearing expenses? (ii) Briefly explain why you need (or do not need) to pay tax for the $2m equipment sales at year 4.

(d) What are the total cash flows generated from operating cash flows, change in working capital, initial investments and ending expenses for each year (years 0 to 4)?

(e) (i) What is the projects NPV? (ii) Should the firm accept/reject the project? Why?