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A Corporation has 3 4 % marginal tax bracket with a 3 0 % required rate of retum or cost of capital, is considering a

A Corporation has 34% marginal tax bracket with a 30% required rate of retum or cost of capital, is considering a new project. This project involves the introduction of a new product. The project is expected to last five years and then, because this is somewhat of a fad project, to be terminated.
Cost of new plant and equipment: $9,900
Shipping and installation cost: $100
Unit Sales:
\table[[Year,Unit sold],[1,500],[2,600],[3,700],[4,800],[5,900]]
Sales price per unit: $50/ unit in years 1-4, $35/unit in year 5
Variable cost per unit: $30/ unit
Annual fixed costs: $3,000
Working Capital Requirement: There will be an initial working capital requirement of $50,000 just to get production started. Then, for each year, the total investment requirement in NWC will be equal to 10% of the dollar value of sales for that year. Finally, 90% of working capital is liquidated at the termination of the project at the end of year 5.
The Depreciation Method: Assume that Straight Line Method will be used over 5 years. It is assumed that 20% of the plant and equipment will be liquated at year 5.
Given the following information,
a) Determine the free cash flows associated with the project,
b) Calculate and comment on the project's NPV?
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