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Bailey Sheppard Corp. (BSC) manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new

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Bailey Sheppard Corp. ("BSC") manufactures musical equipment and is evaluating the economics of expanding its manufacturing facility to enable it to take on a new business customer contract for the next 4 years. Last year, the company paid Target Research LLC $35.000 to do a marketing research study for its product lines. The current expansion scenario would have total construction costs of $1.3 million and it would take about 50 days to complete le essentially up-front). The Company would also put in $250 thousand of new machinery Inventory (raw materjals, work-in-process, finished goods) investment needed for the expansion would be $65 thousand. Annual depreciation associated with the expansion would be $150 thousand per year for the next four years, but the company has decided for income tax purposes to expense 100% of the cost of the long-term assets in Year O. The company expects to borrow 100% of the upfront costs and thereby incur $646 thousand in total interest expense over the life of the project. Incremental sales for this project are estimated to be $1.2 million for Year 1: $1.9 million for Year 2: $2.1 million for Year 3: and $1.2 million for Year 4. Cost of goods sold is estimated to be approximately 50% of total sales and additional fixed costs are estimated to be $100 thousand per year. At the end of the project's estimated life in Year 4, the company estimates it will be able to sell excess capital assets for $125.000 and the expected book value for these items would be $0 (zerol. Also at the end of the project, $40.000 of remaining inventory could be liquidated at cost. The weighted average cost of capitalis 16%, its assumed marginal income tax rate is 25% and its capital gains tax rate is 25%. What is Terminal Year specific Cash Flow excluding the Annual Operating Cash Flow portion

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