A new product is being considered by ABC Inc. The after-tax cash flows at time zero include an outlay for depreciable equipment (I0) of $16M (M = million) and $2.2M for additional net working capital (NWC). The project is expected to have an 8-year life (n=8), and the equipment will be depreciated on a straight-line basis to a zero book value (B=0) over 8 years. When the project terminates in eight years, it is anticipated that the market or salvage value (S) will be $2M and the net working capital will be released. The cash flows before tax (CFBTt) for the project are expected to be $5M per year. The discount rate (r) is 16%, and the relevant tax rate (T) is 35%.

Answer the below questions:

1. a) What are the initial cash flow (CF0)?

2. b) What is the after-tax cash flow for each year?

3. c) What is the depreciation tax shield per year (DTSt)?

4. d) What is the operating cash flow (OCF) for year 1 to year 7 (CF1 - CF7)?

5. e) What is the final year cash flow of the project (CF8)?

6. f) What is the net present value (NPV) of the proposed project?