AAI specializes in production of music equipment. The firm incurred $3.2 million to do feasibility study of the new equipment. The projected sales volume of a new seven-octave voice emulation implant is as follow

Year	1	2	3	4	5
Sales volume (Millions)	10	12	16	14	12

Production of the implants will require $15 million immediate investment in NWC. Thereafter, NWC investment will equal to 20% of projected sales revenue.

Each implant is priced to sell at $35 with a variable cost of $23 per unit. Annual total operating fixed costs amount to $30 million. The production of the implants will require acquisition of computerized machine at a cost of $210 million. Transport and installation costs of the new machine amount to $30 million. The acquisition of the machine is partly financed with a 5-year, 4%, $150 million amortizable loan. The machine is industrial machinery which qualifies as a seven-year MACRS property.

The introduction of the music equipment will reduce after tax cash flows of existing music equipment by $ 5 million per year for the first three years and $3 million per year for the last 2 years.

In five years, the firm projects that it will dispose the machine price approximately equal to about 20% of depreciable cost. The firm is in the 30% marginal tax rate. The cost of capital is 18%.

Required:

(i) Compute the depreciation per year and terminal cash flows on disposal of machine

(ii) Compute investment in NWC each year and terminal cash flows of NWC

(iii) Derive the CFO and FCF of the project

(iv) What is the (i) net present value (NPV) (ii) Profitability Index (PI)

(v) Compute the cash flow distributions to bondholders or debt-holders (CFD) each year.