After spending $300,000 for market research on the viability of making a low cost, portable espresso maker for RVs, your firm projects potential sales of 100,000, 125,000, 150,000, 140,000, and 120,000 over the next 5 years at an average price of $25 per unit. An Austin-area manufacturing site can be bought for $1 million. It is expected to appreciate at 6% per year, and you plan to keep at the end of the 5 years. New equipment will cost $500,000 and can be liquidated at the end of the five years for $125,000. Expect a fixed production cost of $100,000 per year and a variable cost of $20 per unit. Net working capital starts at $300,000 in year zero and is required to be 12% of sales thereafter. Assume a corporate tax rate of 21%, a cost of capital of 12%, and straight-line depreciation over three years.

Follow the step-by-step method of calculating free cash flow showing: Revenues and costs