ABC company is considering producing a new range of smartphones that will require it to build a

new factory. Feasibility studies have been done on the factory which cost $5 million. The studies

have found the following:

1. The factory will cost $25 million and will have a useful life of 20 years.

2. The land where the factory will go is currently used as a carpark for workers and it is

assumed that the company will have to pay $200000 per year for their workers to park in

a nearby carpark.

3. The factory will be depreciated on a straight line basis and will have a salvage value of

$0 but it is believed that most of it can be sold for scrap after 20 years for $50000.

4. Due to the nature of the business they are in, they will have to perform some

environmental tests to make sure that some of the chemicals they are using are not

entering the ground water around the factory. These tests will be performed every 5

years and cost $625000.

5. Through the building of this factory and the selling of the phones it produces, its revenue

will increase by $5 million in year 1 and remain at this level for the operational life of the

factory.

6. The extra costs that the company accrues per year due to the project are $435000 for

labour, $50000 for overhead like power and water bills and marketing costs for the new

line of phones will be $500000 per year but will decrease by $15000 per year as the

phone gains greater penetration.

7. The companys current cost of capital is 8% per year.

8. The tax rate is 30%.

9. The project requires an initial investment in working capital of $1000000 that is returned

in year 20.

Use the above information to answer the following.

A. Calculate the free cash flows that come from this project for the 20 years it is

operational. (ON EXCEL)