After spending $$11,000$ on client$-$development, you have just been offered a big production contract by a new client. The

contract will add $$201,000$ to your revenues for each of the next five years and it will cost you $$98,000$ per year to make

the additional product. You will have to use some existing equipment and buy new equipment as well. The existing

equipment is fully depreciated, but could be sold for $$53,000$ now. If you use it in the project, it will be worthless at the

end of the project. You will buy new equipment valued at $$31,000$ and use the $5-$year MACRS schedule to depreciate it$.$

It will be worthless at the end of the project. Your current production manager earns $$80,000$ per year. Since she is busy

with ongoing projects, you are planning to hire an assistant at $$38,000$ per year to help with the expansion. You will have

to immediately increase your inventory from $$20,000$ to $$30,000.$ It will return to $$20,000$ at the end of the project.

Your company's tax rate is $21\%$ and your discount rate is $14\mathrm{.}5\%.$ What is the NPV of the contract? $($Note: Assume that

the equipment is put into use in year $1.)$

Calculate the free cash flows below for years $0$ through $2$: $($Round to the nearest dollar.$)$

Year $0$

Year $1$

Year $2$

Sales

Cost of Goods Sold

Gross Profit

Annual Cost

Depreciation

EBIT

Tax

Incremental Earnings

Depreciation

Incremental Working Capital

Opportunity Cost

Capital Investment

$

$

$