Cost of new plant and equipment 6300000 Shipping and installation costs 140000 Year units sold 1 65000 2 130000 3 150000 4 55000 5 55000 Sales price per unit in years 1 through 4 290 Sales price per unit in year 5 240 Variable cost per unit 150 Annual fixed costs 300000

(Comprehensive problem) The Shome Corporation, a firm in the 21 percent marginal tax bracket with a required rate of return or cost of capital of 15 percent, is considering a new project. The project involves the introduction of a new product. This project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. Given the following information, B , determine the free cash flows associated with the project, the project's net present value, the profitability index, and the internal rate of return. Apply the appropriate decision criteria. a. What is the initial outlay associated with this project? $ 6550000 (Round to the nearest dollar.) b. What is the annual free cash flow associated with this project in year 1