CalSal-T Inc. produces and sells healthy salt-related products in California. It wants to evaluate a new project with the following characteristics: Cost of new production equipment Shipping and installation costs Unit sales year Units produced and sold 1 2 3 4 5 6 Sales price per unit Variable cost per unit Annual fixed costs Working-capital requirements $ 11,800,000 $ 200,000 125,000 150,000 175,000 175,000 160,000 120,000 Depreciation method $40/unit in years 1 through 4, $35/unit in years 5 through 6. $10/unit in years 1 through 4, $11/unit in years 5 through 6. $700,000 per year in years 1-6 There will be an initial working-capital requirement of $100,000 just to get production started. For each year, the total investment in net working capital will be equal to 8 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase in the first years, and decrease in the later years. Finally, all working capital is liquidated at the termination of the project at the end of year 6. Straight line: each year an equal amount is depreciated (25% of the investment) The company is in the 21% marginal tax bracket, and has a 12% required rate of return (or cost of capital). Questions: a) Construct the Free Cash Flows (25 points) b) Evaluate the project with the NPV method and give your advice. (5 points)