Apple Inc. plans to launch a new product

"Cycle". The project required a marketing

survey that was completed one year ago.

The cost of the marketing survey was

$55,525. Assume here that all revenue,

variable costs and fixed costs are cash;

the new project will generate revenue of

$3,220,000 in each of years 1-12. Variable

expense is expected to be 25% of

revenue and fixed cost will be $128,000.

The project requires new production

equipment that costs $359,000 and an

additional $66,000 to fully install this

equipment. The equipment is being

depreciated to zero using straight line

depreciation over a 15-year tax life. The

project life is, however, only twelve years

and at the end of the project (i.e., at t=12)

the equipment will be sold for $55,000.

There will be an initial run up in cash of

net working capital (NWC) of $32,000 at

the start of the project and final recovery

of NW as the project terminates at the

end of year 12. Assume tax rate of 22%

Assume cost of capital of 9.5% per

annum

Answer the following questions:

1. What is the total initial CAPEX for the

investment?

2. What is the depreciation expense for each year?

3. What is the after-tax salvage value of the specialized equipment?

4. What is the Free Cash Flow (FF) in year O (i.e., =0)?

5. What is the Free Cash Flow (FF) in year 1 (i.e.,

t=1)?

6. What is the Free Cash Flow (FF)

in year 12 (i.e., t=12)?

7. What is the net

present value (NV) of the project?

Apple Inc. plans to launch a new product "Cycle". The project required a marketing survey that was completed one year ago. The cost of the marketing survey was $55,525. Assume here that all revenue, variable costs and fixed costs are cash; the new project will generate revenue of $3,220,000 in each of years 1-12. Variable expense is expected to be 25% of revenue and fixed cost will be $128,000. The project requires new production equipment that costs $359,000 and an additional $66,000 to fully install this equipment. The equipment is being depreciated to zero using straight line depreciation over a 15-year tax life. The project life is, however, only twelve years and at the end of the project (i.e., at t=12) the equipment will be sold for $55,000. There will be an initial run up in cash of net working capital (NWC) of $32,000 at the start of the project and final recovery of NW as the project terminates at the end of year 12. Assume tax rate of 22%. Assume cost of capital of 9.5% per annum Answer the following questions: 1