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 70% chance you will sell 10,000 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 15% chance they will only sell 5000 and also a 15% chance you'll sell 18,000. The gas skateboards would sell for $110 each and have a variable cost of $45 each regardless of how many you sell, the annual fixed costs associated with production would be $110,000, In addition, there will be an initial expenditure of $900,000 associated with the purchase of new production equipment which will be depreciated using the bonus depreciation method in your 1. Because of the number of stores 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 $70,000 in net working capital, and working capital investment will be recovered when the project is shut down. Finally assumed firms marginal tax rate is 25%.

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 9under 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 your 10 (that is, what is the free cash flow in year 10 plus an additional cash flows associated with the termination of the project)?

d. Using the expected free cash flow is, what is the projects NPV given a required return rate of 11%? What would the projects in NPV be if 10,000 skateboards were sold?