d. The company Smart Light produces lights for cars. Its CEO is considering a new product line, which requires an initial investment of 6.5 million for new equipment. This newproduct line will be used for 3 years and generate revenues 10 million per year. The cost of goods sold will be 60% of the annual sales. The new equipment will be depreciated straight line to a book value of 0.5 million at the end of Year 3. The CEO plans to sell the equipment at the end of the project and the sale price is expected to be 1.5 million. Smart light is fully equity-financed and its cost of capital is 12%. It is in the 25% tax bracket (for both operating profits and asset sales profits).

REQUIRED:

i. Please calculate the total Free Cash Flows for each of the three years from the Smart lights new project.

ii. Please calculate the NPV of this project.