Abbyfan is considering developing a Internet of Things appliance, called I O T A.

Sales forecast for I O T A is 40,000 units per year. The product will have a viable market for 4 years at an expected price of $200, after which the product will have zero sales. Production will be outsourced at a cost of $90 per unit.

To verify the compatibility with the I O T A system, Abbyfan must establish a new lab for testing purposes. They will rent the lab space, but need to purchase $3.5 million of new equipment. The equipment will be depreciated using the straightline method over a 5year life down to zero and will have zero resale value at that point.

The lab will be operational in one year, at which point I O T A can ship the product. Abbyfan expects to spend $2.0 million per year on rental costs for the lab space, as well as marketing and support for this product.

Abbyfan expects no incremental cash or inventory, but receivables related to I O T A are expected to account for 15% of annual sales and payables are expected to be 15% of the annual cost of goods sold.

Abbyfans managers believe that the I O T A project has risks similar to its existing projects, for which it has a cost of capital of 15%. Assume the company's tax rate is 40%.

What are the project's free cash flows at the end of year 5?