(Calculating free cash flows) You are considering new elliptical trainers and you feel you can sell 4,000 of these per year for 5 years (after which time this project is expected to shut down when it is learned that being fit is unhealthy). The elliptical trainers would sell for $2000 each and have a variable cost of $1000 each. The annual fixed costs associated with production would be $1,300,000. In addition, there would be a$7,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the bonus depreciation method in year 1. This project will also require a one-time initial investment of$1,100,000 in net working capital associated with inventory, andworking-capital investment will be recovered when the project is shut down. Finally, assume that the firm's marginal tax rate is 26 percent.

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

b. What are the annual free cash flows associated with this project for years 1, and 2 through 4?

c. What is the terminal cash flow in year 5 (that is, what is the free cash flow in year plus 5 any additional cash flows associated with the termination of the project)?

d. What is the project's NPV given a required rate of return of 12 percent?