At present, Solartech Skateboards is considering expanding its product line to include gas-powered skateboards; however, it is questionable how well they will be received by skateboarders. Although you feel there is a 40 percent chance you will sell of these per year for 10 years (after which time this project is expected to shut down because solar-powered skateboards will become more popular), you also recognize that there is a 30 percent chance that you will only sell 1000 and also a 30 percent chance you will sell 18000 . The gas skateboards would sell 130 for each and have a variable cost of $40 each. Regardless of how many you sell, the annual fixed costs associated with production would be $110,000. In addition, there would be an initial expenditure of $1,000,000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in year 1. Because of the number of stores that will need inventory, the working capital requirements are the same regardless of the level of sales. This project will require a one-time initial investment of 30,000 in net working capital, and working-capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 24 percent.

a. What is the initial outlay associated with the project?

b. What are the annual free cash flows associated with the project for years 1, and 2 through 9 under each sales forecast? What are the expected annual free cash flows for year 1, and years 2 through 9?

c. What is the terminal cash flow in year 10 (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the project)?

d. Using the expected free cash flows, what is the project's NPV given a required rate of return of 11 percent? What would the project's NPV be if 11,000 skateboards were sold?

So far, this is what I have.

a. What is the initial outlay associated with this project?

$1030000(Round to the nearest dollar.)

Part 2

b. If your sales forecast is 11,000 skateboards per year, what is the free cash flow associated with this project for year 1?

$ ____(Round to the nearest dollar.)